Moody's downgraded their unsecured rating on YUM's bank facility today, and I am downgrading my view on this stock's support level.
- Breaking $36.61 was a material negative event here. Next support is $34.09.
- The 50 day moving average is where the masses think it is going to find support. That price, as a reference point it $91.25. My model sees WYNN's next support at $84.22.
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- CKR also provided restaurant operating cost guidance for 2Q and expects restaurant operating margins to be up 20-50 bps year-over-year. The company is facing an easy comparison from last year when restaurant margins fell 300 bps (primarily as a result of higher food costs), but margins growing YOY is favorable, nonetheless, as CKR’s margins have declined for the last 6 quarters. For reference, the company is also facing as easy comparison in 3Q as margins were down 190 bps in 3Q08 on a consolidated basis (down 260 bps at Hardee’s).
- These favorable year-over-year restaurant margins should translate into expanding operating margins as the company has communicated that it is focused on reducing its G&A expenses, which have been criticized as being too high (Ramius LLC, me). CKR’s operating margins grew YOY in 1Q for the first time in 5 quarters (up 40 bps), and management stated on its last earnings call that the lower levels of G&A in 1Q would be an appropriate run-rate going forward. The company highlighted that it will see about a $1 million increase in its share-based compensation (included in G&A) in 2Q, but that the level of increase will be only slightly more than what the company experienced in 1Q.
Looking at the short term chart, risk premiums clearly changed in 2008. Looking at the 30 year chart should give you a keen appreciation for where this relationship has been and, more importantly, where it could go from here.
The lowest level that the spread has achieved in 30 years at the close was -241bp on march 30, 1980. The highest was 275bp on July 29, 2003.
Keith McCullough & Andrew Barber
Research Edge LLC
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