The Daily Dose: Market Right or Wrong?

 | Aug 06, 2014 | 10:00 AM EDT
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It's hot and heavy inside of the earnings season whirlwind. I think a theme is that investors aren't sure when the stock market judged a quarter wrong. Sometimes a company reports earnings, they are strong, the commentary by execs is strong and yet the stock tanks. It's important to correctly spot when the market may be wrong, or when it has things nailed.

Here are a couple of examples.

Papa John's (PZZA)

I told you Monday that I was very concerned on the quality of the quarter. I have been in trenches researching the company and seeking out information from various sources. Last night, the pizza maker reported a $0.02-a-share earnings miss and the stock was whacked. I believe this was yet another soft profit quarter from the company due to heavy promotional activity and commodity cost inflation. It was the third-straight earnings miss. The results were just not as strong in terms of margins as those offered by Domino's (DPZ).

Bad quarter, market right.

Target (TGT)

The company dropped another epic earnings warning on the market midday on Tuesday. I continue to view the stock a sell. Although the company's $148 million estimate on the loss from the data breach caught the headlines, I think the weakness of the quarter was of greater concern. Essentially, Target's U.S. and Canadian businesses are underperforming lowered guidance from the company. Promotions aren't working in driving consistent traffic. In Canada, the customer still has not warmed up to the brand, and hence the company remains in merchandise markdown mode.

Look for Target to issue another earnings warning when it announces second quarter results later this month.

Bad quarter, market right.

Buffalo Wild Wings (BWLD)

The stock was pummeled last week on the earnings results. It doesn't help that with the market pulling back, high-multiple stocks such as Buffalo Wild Wings are susceptive to selloffs. But, I think the quarter was strong, as same-restaurant sales have accelerated for more than four-straight quarters. The market zeroed in on some higher-than-planned expenses associated with investment spending and employee training and overlooked key things the company has coming down the pipe. Online ordering via tablet devices is about to be tested. Football season will receive some menu innovation and a price hike. And the company is poised to acquire new brands, I think within the next 12 months, by tapping into its $100 million credit revolver. Buffalo Wild Wings could be well on the way of being a holder of new restaurant concepts, very attractive.

Good quarter, market wrong.

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