Casual dining restaurant operator Brinker International (NYSE: EAT)
shares got pummeled from $41.69 to $7.00 during the five-week coronavirus black swan pandemic that drove down the S&P 500 (NYSEARCA: SPY)
by (-34%). In correlation with the SPY, EAT shares have managed to recover some ground off its lows. The Company has demonstrated resolute agility during the pandemic by switching to a fully off-premises distribution model that has been able to keep revenues flowing at a rate of 57% for the year-ago pre-COVID-19 period. As jurisdictions phase in restart initiatives, Brinker should continue to show improving top-line recovery and growth moving forward. While shares have recovered just over half its ground, they are still very appetizing and become downright delicious at key opportunistic pullback levels.
Q3 Fiscal Year 2020 Earnings Results
On April 29th, Brinker reported blowout Q3 FY 2020 results for the quarter ending March 25, 2020. Earnings came in at $1.28-per share versus consensus analyst estimates of $0.52-per share, beating estimates by $0.76-per share. Revenues for the quarter came in at $860 million beating $845.99 consensus analyst estimates, rising 2.5% YoY. As with numerous companies, Brinker’s business was hitting on all cylinders until the spread of coronavirus entered the picture. This triggered a severe industry economic contraction that’s affected peers like operator of Olive Garden and Longhorn Steakhouses Darden Restaurants (NYSE: DRI) and YUM! Brands (NYSE: YUM) , operator of Taco Bell, KFC and Pizza Hut restaurants.
Impacts of COVID-19
Brinkers reported they began to experience the impact of COVID-19 on March 8, 2020 and reverted to a 100% off-premise distribution take-out model by the end of the quarter to combat the spread of COVID-19. The Company’s timely decision to enhance off-premise business over the last few years has paid off with online and mobile ordering, curbside pickup and third-party delivery. As dining rooms shut down, off-premise order volumes continue to ramp higher by the week. Online orders accounted for 70% of all takeout orders from Mar. 22 to April 22, 2020. Off-premise sales captured 57% of prior year total restaurant sales during the week ended April 22, 2020. This is a very impressive stat. Unlike other types of businesses like retail apparel, gyms, and malls, Brinkers revenues weren’t completely shut down but rather contracted during the pandemic. The Company has demonstrated the agility to adopt measures to stay ahead of the lasting impacts of COVID-19.
On May 7, 2020, Brinkers priced a 7-million share offering at $18.25-per share with an options for the underwriters a 30-day option to purchase up to 1,050,000 additional shares. The total proceeds of $121 to $139 million will help bolster cash position and be used for general corporate purposes. The offering was completed on May 11, 2020.
Shaping the Restart Narrative
As states and cities start to reopen local economies, Brinker commences phasing in dining room operations for its 1,675 Chili’s Grill and Bar and 53 Maggiano’s Little Italy restaurants both domestically and internationally. The top-line contraction will once again transform into expansion mode. Investors looking to play the expansion should monitor the opportunistic pullback entry levels.
Opportunistic Entry Levels
Using the rifle charts on a weekly time frame provides a broader view of the landscape for EAT stock. The weekly market structure low (MSL) buy triggered above $17.03 powered by the weekly stochastic mini pup that grinded shares up to the $23.61 Fibonacci (fib) level. This is a tough resistance that may be able to hold long enough for a reversion back to the weekly 5-period moving average (MA) are the $20.52 to $19.98 fib support area. If the daily 5-period MA actually breaks down, then a bearish inverse pup may form taking shares back down towards the $18.16 fib and ultimately the $17.02 weekly MSL trigger level. This presents three potential opportunistic pullback entry levels at the $20.50 weekly 5-pd MA, $18.16 fib, and the $17.02 weekly MSL trigger. Traders can use these fib levels to scalp reversions utilizing intraday time frames. Swing traders can scale for overnight to multi-day holds on converging daily/60-minute stochastic. Longer-term investors may consider a pyramid sizing dollar-cost averaging approach with a covered call strategy to buffer downdrafts.
10 Oversold Stocks That Are Ready For a Comeback
A fundamental concept of investing is to buy stocks at a value. One strategy used by investors is to focus on stocks that are oversold. Fundamental analysis can give investors an idea of certain stocks to look at. However, momentum is also important. For that reason, investors look for technical indicators to help them find oversold stocks that might be ready for a comeback.
One of the most popular tools is the Relative Strength Index (RSI). The RSI is a momentum indicator that measures the velocity and magnitude of price movements. The index also compares them with the magnitude of average gains and average losses.
The formula for calculating RSI is as follows:
RSI = 100 - ( 100 / 1 + RS)
Where RS (Relative Strength) is the average gain divided by the average loss.
Investors can use virtually any timeframe they wish. One of the most common is a 14-day RSI. Decreasing the number of days makes the RSI more sensitive to price changes. Conversely increasing the number of days makes the indicator less sensitive to price changes.
Investors may have different overbought or oversold indicators, but standard benchmarks are a stock may be overbought if its RSI exceeds 70 and may be oversold if its RSI exceeds 30.
The stocks in this presentation are chosen for a variety of fundamental and technical indicators. And all the stocks have been affected in one form or another by the Covid-19 pandemic.
View the "10 Oversold Stocks That Are Ready For a Comeback".