These Earnings Are Cold Comfort

Earnings of blue chip stocks had been driving the Dow higher all week long, but Travelersmissed projections and Europe weighed on investors' minds, causing the index to tumble 120 points Friday. Some companies had their own problems to contend with, though, and managed to do even worse, plunging by double-digit percentages.

So let's see whether they had good reason to drop as sometimes panic-fueled declines can lead to excellent buying opportunities.


Yesterday's % Change


CAPS Rating (out of 5)

Chipotle Mexican Grill (NYS: CMG)




Rambus (NAS: RMBS)




Advanced Micro Devices (NYS: AMD)




Missed by a mile
Well, Travelers wasn't the only one having earnings issues as all three of our big losers on Friday also disappointed in that department. Advanced Micro Devices faced slack PC sales, underscoring just how hard the iPad is eating into its PC-driven business. Where analysts had been forecasting earnings of $0.07 a share, a slight miss to last year's $0.08, AMD came in at $0.06, saying international desktop processor sales were weak and anemic sales of notebooks were undercut by the overall soft consumer PC market.

Rambus didn't fare any better, as demand for memory chips weakened as well. After losing its collusion case against Micron (NAS: MU) and Hynix Semiconductor, Rambus' remaining business doesn't look healthy. And to make matters worse, 10% customer Elpida went bankrupt earlier this year -- only to have Micron move in to buy it!

An investment in Rambus is one that's going to require reduced expectations. While analysts are hopeful about its move into solid-state memory and the agreement it signed with Cooper Lighting, it's hard to see it garnering the same premiums as it did in the past. The LED market has been rough and tumble for Aixtron and others already plying their trade, so another entrant won't make the market any more conducive to earnings growth going forward.

More bad news
Of course AMD didn't exactly provide any reason to hope the future would be any better either as it forecast third-quarter revenues would at best be 2% higher than last quarter but might actually fall as much as 4%. That puts the midpoint revenue target at around $1.4 billion, far enough below analyst estimates of $1.5 billion to cap an otherwise disappointing report.

The one hope is that some of the weakness is related to Microsoft's release of the Windows 8 OS this fall. PC purchasers may be holding off to get the latest iteration, so the fourth quarter may be much more robust than what people are currently expecting.

Despite a better performance by Intel (NAS: INTC) , the semiconductor industry faces challenging times, and a wave of consolidation may be approaching as evidenced by Micron's acquisition of Elpida. Tell me in the comments box below whether you think the problems AMD and Rambus face are worse than mere delayed purchases or a need to expand into new business.

Hell's kitchen
With its incredible growth rates, Chipotle Mexican Grill had become an analyst and investor favorite, and had the competition jealously eyeing its success in the fast-casual dining segment. Yum! Brands' Taco Bell unit moved to emulate its rival, creating a more casual dining experience and bringing in celebrity chefs to spice up its menu. Wendy's and Burger King were also installing lounges while giving their menus a makeover.

But apparently the party's over as Chipotle's revenues grew "just" 21% in the quarter to $690 million, well below the $701 million analysts expected. With a drought burning up the Midwest, it was feared that profits would take a hit from rising food costs later in the year. Now analysts are downgrading the stock and Chipotle's taking down a few restaurant rivals with it, including Yum, Panera, and Texas Roadhouse.

Even after the big bite the market took out of the cantina, Chipotle is still trading just under 30 times expectations, which may mean it has further still to fall. Tell me below or on the Chipotle Mexican Grill CAPS page whether investors will get heartburn buying in at these lower levels.

Ready for a resurrection
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Panera Bread, Chipotle Mexican Grill, Microsoft, and Intel. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill, Intel, Panera Bread, and Microsoft. Motley Fool newsletter services have recommended creating a bear put spread position in Chipotle Mexican Grill. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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