The Zacks Analyst Blog Highlights: BP plc, Transocean, Cameron International, Chipotle Mexican Grill and California Pizza Kitchen

CHICAGO, April 25, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: BP plc (NYSE: BP), Transocean Ltd. (NYSE: RIG), Cameron International Corp. (NYSE: CAM), Chipotle Mexican Grill, Inc. (NYSE: CMG) and California Pizza Kitchen Inc. (Nasdaq: CPKI).

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Here are highlights from Thursday's Analyst Blog:

BP: Continuing the Blame Game?

On the first anniversary of the Deepwater Horizon rig disaster, British giant BP plc (NYSE: BP) has filed suits in the New Orleans federal court against two of its contractors – Transocean Ltd. (NYSE: RIG) and Cameron International Corp. (NYSE: CAM) – seeking billions of dollars in damages and other costs. The London-based group has accused Transocean and Cameron of negligence that led to the biggest environmental disaster in U.S. history.

As a reminder, on April 20, 2010, offshore driller Transocean's ultra-deepwater Horizon drilling platform, contracted to BP, sank following an explosion while operating in the U.S. Gulf of Mexico off the coast of Louisiana. The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the worst oil spill in U.S. history. Subsequently, a moratorium was imposed on offshore drilling in the region at water depths of more than 500 feet, which was lifted on October 12, 2010.

The lawsuit filed by BP alleges that Transocean, which owned and operated the Deepwater Horizon, was squarely to blame for the oil spill, as every bit of safety system/device and well control procedure on the rig failed. The Swiss company overlooked critical signs associated with the disaster and failed to take appropriate actions to shut in the Macondo well, alleges BP, and has therefore asked for $40 billion in damages.

Separately, BP accused Cameron – the maker of a critical safety device called 'blowout preventer' – of designing and building a faulty piece of equipment and negligently maintaining it, which then failed to properly operate when required. As a result, BP seeks to force Cameron to cough up all or part of the damages that could be charged against Europe's second-largest oil company by the federal government.

BP, which took a $40.9 billion pre-tax charge in 2010 related to the spill, hopes that the damage claims should help it pay for tens of billions of dollars in charges resulting from the spill, which consist of clean-up and compensation costs.

Incidentally, both Cameron and Transocean have counter-sued BP. According to reports, a federal trial is scheduled for next year to assess the degree of fault and the quantum of liability that lies with the companies.

Cameron and Transocean shares currently retain a Zacks #3 Rank, which translates into a short-term 'Hold' rating whereas BP has a Zacks #2 Rank (short-term Buy rating). Longer-term, we are Neutral on all the three stocks.

Chipotle Beats Sales, Not Margins

Chipotle Mexican Grill, Inc. (NYSE: CMG) reported first quarter 2011 earnings of $1.46, which surpassed the Zacks Consensus Estimate of $1.43 and soared 22.7% from $1.19 in the prior-year quarter.

The company experienced strong top-line growth buoyed by higher traffic count and new restaurant openings.

The fast food restaurant chain said that revenues rose 24.3 % to $509.4 million, driven by new restaurant openings and an increase in comparable-store sales. The reported revenues also outperformed the Zacks Consensus Estimate of $495 million.

Quarter Highlights

Comparable-store sales growth has been decelerating since second-quarter 2008 – when it increased 7.1% – although it remained positive, showing resilience in a sluggish environment.

After reaching the lowest point of 1.7% in the second-quarter 2009, comps have been on the rise. Comparable-stores sales climbed 12.4% in the quarter under review and surged from 4.3% in the prior-year quarter.

Restaurant operating margin was down 90 basis points to 25.2%, attributable to a 180- basis point (bp) (as a percentage of total revenue) spike in food, beverage and packaging costs, and a 60-bp rise in other operating costs, partially offset by a 80- bp drop in labor and a 70-bp drop in occupancy.

Total operating margin plunged from 15.0% in the first quarter of 2010 to 14.7% in the current quarter, due to higher restaurant operating cost partially set off by a 10-bps dip in general and administrative expenses, a 50-bp drop in depreciation and amortization cost and a 10-bp decline in pre-opening cost.

Stores Update

During the quarter under review, Chipotle opened 12 restaurants. It currently operates 1,095 outlets.

Chipotle has remained largely unruffled by the recent economic slowdown. The company plans to open 135-145 new restaurants in fiscal 2011.

Financial Position

Chipotle ended the quarter with cash and cash equivalents of $282.9 million and shareholders' equity of $862.7 million.

Outlook

For fiscal year 2011, management now expects mid single digit comparable-store sales growth, as compared to its previous expectation of low single digit growth.

Our Take

We believe Chipotle is well positioned to expand rapidly while generating improved earnings margins and returns on invested capital. With a strong balance sheet, consistent earnings, healthy cash flow, excellent unit economics, international expansion and continued marketing initiatives, we are of the opinion that the stock provides relative safety and consistent growth.

The company has reported better-than-expected results. Hence, we expect estimates to move up in the coming days. However, margins are expected to remain under pressure due to food cost inflation.

One of Chipotle's primary competitors California Pizza Kitchen Inc. (Nasdaq: CPKI) will report its first quarter 2011 results on May 6, 2011.

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