- Management reiterated its goal to ultimately open 3000 restaurants in the US and worldwide with expansions in London, Toronto, Germany and France already under way. The company also expects to introduce lower-priced kids menu, soups and salads to boost revenue going forward.
CMG has consistently performed at 25% growth easily surpassing the industry average of 13%. Currently, CMG shares trade at 21.5x FY2010 earnings estimate vs. industry average of 22. Given its growth rate and PE relative to industry, I believe CMG is trading at a very reasonable valuation.
- On Jan 8, Morgan Stanley upgraded the stock to Overweight.
- On Jan 11, Deutsche Bank upgraded the stock to Buy.
- On Jan 14, Wells Fargo upgraded the stock to Market Perform.
After long consolidation, the stock finally broke out above $96 on high volume and has held it nicely. Currently, Feb implied volatility is sharply elevated at 60 vs. March at 41. At-the-money straddle at $100 strike is going for $7.30. So the market expects the stock to make about 7.3% move by Feb expiration.
I am slightly neutral-to-bullish going into earnings. Given the volatility skew and expected 7.3% move, I like the following double diagonal calendar spread: - Buy to open March $110 calls
- Buy to open March $100 puts
- Sell to open Feb $110 calls
- Sell to open Feb $100 puts
I just filled the order for net debit of $2.65. This spread creates a very large range. As long as shares stay between $95 and $116, the spread will make money. The downside break even point of $95 is below current support of $96 and that's why I am willing to take the risk of less cushion on the downside vs. the upside. I like the odds.
Good luck!
