In the early days of the economic recovery, the so-called “reopening trade” became a popular way to invest in beaten up industries that were heavily impacted by the pandemic. From airlines and cruise ships to hotels and restaurants, investors rushed into these downtrodden stocks in expectation of better times ahead.
In many cases those expectations were fulfilled. A rebound in leisure travel and reopened bars and restaurants brought better financial results and outlooks to a lot of companies. This coincided with a sharp rebound in their share prices.
So, when the delta variant came along and threatened to throw water on the party, it was déjà vu for many in tourism space. Mounting supply chain pressures and labor shortages have only made matters worse.
The potpourri of headwinds currently facing the once invincible re-opening plays has forced Wall Street to re-calibrate their expectations for the rest of the year and 2022. Last week several re-opening stocks were among the names given reduced price targets by multiple sell-side firms.
Why Did Analysts Lower Their Southwest Airlines Price Targets?
A half dozen analysts lowered their price targets for Southwest Airlines (NYSE: LUV) on Friday. When the dust settled, the range of the targets went from $60-$76 to $56-71. The reductions weren’t drastic but more so a reflection of the near-term cost and labor issues impacting the airliner.
The more modest price targets were issued following Southwest’s third-quarter earnings report in which the company posted better than expected revenue and a narrower loss compared to a year ago. This was overshadowed by management’s warnings about the impact of higher fuel prices on future results.
Adding to the Street’s concerns are Southwest’s staffing levels which were below plan last quarter and led to canceled flights. Although the company said it plans to “aggressively” hire approximately 5,000 workers by year-end, reaching this goal is far from certain in a labor market riddled by muted job demand.
So, with the usually dependable airliner on shaky ground heading into the final months of the year (and not expected to turn a profit this quarter), analysts have pared back their price targets. Thus far, however, no firms have changed their ratings on Southwest Airlines as the Street remains overwhelmingly bullish about the longer term.
What are the Issues Facing BJ’s Restaurants Shareholders?
BJ’s Restaurants (NASDAQ: BJRI) staged one of the most impressive comebacks from a March 2020 low. The stock rose tenfold by March of this year quickly becoming one of the biggest reopening play hits.
It’s been mostly downhill since. Investors that continued to dine with BJ’s Restaurants have seen the share price nearly cut in half amid disappointing quarterly results and the impact of the resurgent coronavirus.
That trend continued last week when a trio of sell-side firms lowered their price targets on the casual restaurant chain operator. Wedbush, Robert W. Baird, and Stifel Nicholas took big bites out of their price targets. The group has opted for targets in the $35 to $40 range instead of the prior $40 to $49 range.
BJ’s Restaurants' weaker-than-expected third-quarter report was the main catalyst here. Although sales were up 42% year-over-year to $282 million, the Street was looking for $293 million and positive EPS which also didn’t happen. Management cited the spread of the delta variant as the primary cause which along with staffing challenges led to reduced hours of operation, limited menu choices, and half-empty dining rooms.
Going forward these issues and more are likely to weigh on BJ’s Restaurants and its peers. The industry is also grappling with food cost inflation which most businesses have limited capacity to pass on the customers. As analysts’ more cautious tone suggests, this may play into the hands of fast-casual chain alternatives and grill BJ’s Restaurants profits.
Will Boston Beer Stock Recover?
Boston Beer (NYSE: SAM) is considered less of a reopening play than others since it derives sales from at-home consumption in addition to restaurant and entertainment venue channels. In fact, the craft beer maker got a major boost from the drink-at-home trend that stemmed from closed dining rooms and watering holes worldwide. But since climbing to a record high of $1,349.98 in April 2021, Boston Beer shareholders have experienced a big-time hangover.
Despite restaurants, casino, and other leisure customers reopening, Boston Beer has delivered far from buzzworthy results and its share price has sunk back into the $500’s. Management’s bubbly expectations for growth in its Truly hard seltzer brands fell flat causing bloated inventory levels and additional logistics headaches. Slowing demand for hard seltzers has been blamed on reduced at-home consumption, a flood of new hard seltzer products in the market, and a consumer taste for the drinks that hasn’t transferred to the on-premise business.
Hard seltzer has taken much of the blame for Boston Beer’s recent woes but there truly are other reasons. Higher spending on advertising and promotion along with immense craft beer competition has weighed on profitability. It wasn’t surprising then that on Friday four firms lowered their price targets on the stock following another uninspiring quarterly report.
The Street’s opinions on Boston Beer vary widely even among the analysts who lowered their price targets. MKM Partners sees the stock trending towards $475 while a still bullish Credit Suisse trimmed its price target to $935. Last month Cowen called the stock a sell and gave it a Street-low $400 target. So, with price targets all over the map on this one, investors are left to decide if Boston Beer’s best days are behind it or if it’s time to order another round.
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