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Bull of the Day: The Chef's Warehouse (CHEF)

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The Chef’s Warehouse (CHEF - Free Report) is a Zacks Rank #1 (Strong Buy) that is a distributer of specialty food product in the United Sates. The company is a go to for chefs who operate restaurants, hotels, caterers, bakeries, cruise lines, country clubs, culinary schools and fine dining establishments.

The stock is one of the only names you’ll find that is up for 2022. After trading sideways for the first half of the year, the stock fought off market negativity and held the $30-32 area whenever markets sold off.

After a big EPS beat, the stock shot to all-time highs. With CHEF up almost 20% on the year, investors are now wondering if this momentum can continue or if the stock has made its move.

More about CHEF

The company was founded in 1985 and is headquartered in Ridgefield, Connecticut. It employs 2,700 people and has a market cap of $1.5 billion.

The company's product portfolio includes approximately 50,000 stock-keeping units, such as specialty food products, such as artisan charcuterie, specialty cheeses, unique oils and vinegars, truffles, caviar, chocolate, and pastry products. 

The stock has a Zacks Style Scores of “A” in Momentum, “B” in Growth, but “D” in Value. The value issue lies with a Forward PE of 33. The stock pays no dividend.

Q4 Earnings Beat and Guide

In late April, Chef’s Warehouse reported earnings, seeing a 233% EPS beat. Q4 came in at $0.26 v the -$0.52 expected. Revenues were up significantly year over year, with the company reporting $558.3M v the $282M last year.

The company affirmed FY revenues at $2.1-2.2B v the $2.15B expected.

CEO Chris Pappas had the following comments on the quarter:

 “Revenue trends were strong in the fourth quarter as we saw continued growth in consumer confidence in dining out across our markets…December sales and business activity grew steadily as holiday customer traffic drove sequential volume increases commensurate with pre-COVID periods, even with a reduction in larger corporate parties and events.” 

On June 22nd, the company came out with some positive guidance, citing strong demand. Fiscal year 2022 revenues were taken higher, from the expected $2.26B, to now $2.33-2.43B. They also raised their gross profit outlook from $500-524M to $542-565M.

Management said that strength in customer demand and the team’s ability to merchandize their product drove financial performance.

Estimates Rising

The earnings and guidance have helped analysts take price targets and estimates higher. After EPS, BMO capital markets reiterated their outperform rating, but lifted their price target from $40 to $44.

Over the last 7 days, estimates have shot higher across all time frames. For the current quarter, we have seen estimates jump from $0.23 to $0.35, or 52%. For the current year, we have seen a 56% move higher, with estimates going from $0.78 to $1.22.

The Technical Take

The stock crashed during COVID, moving from the $40 level to under $5 a share. With COVID mostly past us and restaurants back open, the stock has made a full recovery.

After printing all-time highs, CHEF has pulled back a little bit. Investors should eye some moving averages below to get a good entry into the stock. If we get a larger pullback, the $33 level is the 200-day moving average.

For those looking to jump in early, the $35.50 area is where the 50-day MA resides. Additionally, if you draw a Fibonacci retracement from June lows to all-time highs, you get a 61.8% retracement at the $35.00 level. So that $35-35.50 spot might be the buy zone for more aggressive traders.

In Summary

The current market environment is not giving investors a lot of winners. However, Chef’s Warehouse has bee a solid exception. With the stock up almost 20% on the year, the market is trying to tell us something.

If the stock can perform under a period of severe stress, then it should really get going when the atmosphere improves. Investors should be buying pullbacks when support shows itself and then look to be rewarded when the broad market improves.

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