The 21 per cent surge in the share price of fast food store operator Collins Foods in recent days reflects the KFC and Taco Bell operator’s impressive revenue growth for the year ended April 30,But the extreme share price reaction also reflects the fact that the market didn’t really know what to expect; research from Morgan Stanley shows that earnings estimates for Collins Foods were among the most stale on the market, with consensus not updated for about 149 days.
Stale estimates always create the potential for surprises. But as Nicol points out, stale estimates are even more of a concern given economic conditions“Given the pace of economic adjustment that seems to be occurring on the domestic front, the confession season post financial year-end looms as a busy one, as the pressure that tighter financial conditions brings starts to mount.”
Like most market observers, Nicol continues to be “cautious around positioning to what we collectively call out as the cash rate-sensitive sectors – consumer-facing, housing-linked and banks. The consumer adjustment has been stark and appears to have taken a sudden halt in activity across durable goods and some discretionary activities.