Story Stocks

Boston Beer (SAM +6%) is trading sharply higher today after reporting its Q2 results yesterday after the close. Despite a weaker than expected volume environment and a challenging macro backdrop, the beer and specialty beverages giant (Samuel Adams, Truly, Twisted-Tea) exceeded expectations. The company delivered strong margin expansion and EPS growth. Perhaps just as encouraging to investors is the better-than-feared tariff impact on FY25 EPS.

• Because of the current challenges faced by the beer industry and notably bad weather in key selling weeks (13 consecutive weekends of rain in the Northeast), SAM's depletion softened sequentially and yr/yr. Depletions were down 5% in the quarter, while shipments fared better, being only down 1%. Shipments were mostly driven by wholesaler demand for its new Sun Cruiser and Truly Unruly innovations. SAM expects shipment trends to rebalance with depletions in 2H25.
• Despite the softness, SAM was able to deliver strong margin expansion and EPS growth in the quarter, mainly due to progress on productivity initiatives. These include improved brewery efficiency, pricing actions, and a favorable product mix. Notably, gross margin expanded 380bps yr/yr to 49.8%. As a result, SAM has raised its FY25 margin guidance to 46-47.3% from 45-47%, despite an estimated 70-100 bps tariff headwind.
• A bright spot is its new Sun Cruiser tea. The ready-to-drink spirit (RTD) launched last summer and went national at the start of FY25. The drink has been gross margin accretive and continues to grow volumes week/week. It's being well received by wholesalers, retailers, and consumers. As a result, it has quickly captured a 4% market share.
• Just as encouraging is its updated FY25 EPS guidance. On a positive note, SAM reduced its estimated impact of tariffs on EPS. The unfavorable tariff impact on EPS is now expected to be $0.96-1.28, down from $1.25-1.90. While FY25 EPS guidance excluding tariffs remains unchanged, the smaller tariff hit is being viewed as better-than-feared by investors.

Overall, SAM delivered Q2 results that exceeded expectations despite a challenging environment. Margin expansion, strong performance from new products, and a reduced tariff impact are resonating well with investors. Also, these results tell us that the US consumer is holding up pretty well despite the macro environment. Investors are pleased to see that as well. Finally, the stock has pulled back significantly since mid-May, which tells us sentiment was running low heading into this report. That helps to explain today's big move.

Centene’s (CNC) 2Q25 earnings report underscored the intense pressures facing the health insurance industry as the company fell short of EPS expectations and slashed its FY25 EPS guidance to $1.75 from its prior guidance of $7.25. Despite the troubling results and outlook, CNC's stock is climbing higher amid a relief rally as the market had already priced in much of the negative sentiment following the company’s July 1 withdrawal of its 2025 guidance. That withdrawal triggered a 40% stock price plunge after Wakely’s industry data revealed higher-than-expected morbidity and lower Marketplace growth.

This followed similar moves by peers, with UnitedHealth (UNH) suspending its FY25 outlook in May due to rising Medicare Advantage costs and Molina Healthcare (MOH) slashing its 2025 EPS forecast on July 9, citing elevated medical costs and unpredictable utilization trends, setting rock-bottom expectations for CNC’s Q2 report.

• CNC's Health Benefits Ratio surged to 93.0% in Q2 from 87.6% a year earlier, reflecting significant margin compression driven by multiple factors. Higher medical costs in the Marketplace segment stemmed from increased acuity among enrollees, particularly in behavioral health and high-cost specialty drugs, while Medicaid faced similar pressures from rising costs in behavioral health, home health, and pharmaceuticals, especially in key states like New York and Florida.
• Additionally, a $1.8 bln reduction in CNC’s 2025 net Marketplace risk adjustment revenue transfer estimate, later revised to $2.4 bln, exacerbated the HBR spike, as the sicker-than-expected patient pool disrupted risk adjustment assumptions, leading to lower federal reimbursements.
• Membership trends showed contraction in CNC’s core government-backed programs, with Medicaid membership declining to 12.82 mln from 13.1 mln yr/yr, primarily due to post-pandemic eligibility redeterminations that reduced enrollment, particularly in states with stricter recertification processes. Medicare membership also fell to 1.03 mln from 1.13 mln, driven by competitive pressures in Medicare Advantage and adjustments following the Inflation Reduction Act’s impact on Part D plans.
• In contrast, the Commercial segment, particularly the ACA Marketplace under the Ambetter brand, was a bright spot, with membership growing to 6.3 mln from 4.8 mln, fueled by strong demand for affordable plans despite the higher morbidity challenges impacting profitability.
• The slashed FY25 EPS guidance reflects a significant $2.4 bln revenue headwind, up from an earlier $1.8 bln estimate, driven by worse-than-expected Marketplace morbidity, with market morbidity raising by 16-17% yr/yr in some states. This shift, identified through Wakely’s data, suggests higher-risk patients are enrolling, increasing medical costs and reducing risk adjustment transfers. Elevated utilization trends, particularly in behavioral health and chronic condition management, are also noted as key drivers, with an additional $200 mln pre-tax headwind expected in 2H25 due to sustained high medical costs.
• CNC has fortified its platform to navigate the turbulent environment, leveraging its scale as the largest ACA Marketplace carrier with 4.4 mln members and a diversified presence across Medicaid, Medicare, and Commercial segments. The company is actively refiling 2026 Marketplace rates to reflect higher morbidity baselines and negotiating with states to align Medicaid reimbursements with rising acuity, aiming to stabilize margins. Operational efficiencies, cost-saving initiatives, and growth in Medicare Advantage, which performed better than expected, should position CNC for a potential recovery once these headwinds ease.

The health insurance industry is grappling with unprecedented medical cost pressures and shifting risk pools, and CNC’s Q2 results and slashed FY25 outlook reflect these systemic challenges. While the company’s diversified platform and proactive rate adjustments offer a path to recovery, near-term profitability remains constrained by elevated morbidity and utilization trends.

Deckers (DECK +13%) is stepping sharply higher with a big gain today after reporting Q1 (Jun) results last night. The footwear company reported a huge EPS beat while revenue rose a robust 16.9% yr/yr to $964.5 mln, well ahead of $890-910 mln prior guidance. Also, its in-line Q2 (Sep) guidance was a nice change from several recent quarters where DECK provided downside guidance. This has caused the stock to be under pressure since late January.

• The company started of FY26 on the right foot, with both of its major footwear brands (HOKA and UGG) outperforming expectations set on tis last call. Both brands gained market share while maintaining a high degree of full-price integrity. HOKA delivered the largest quarter in its history, driving strong sell-throughs of key model transitions.
• HOKA brand revenue rose 19.8% yr/yr to $653.1 mln, with global wholesale sales up 30%. This was driven primarily by international regions, especially EMEA and APAC, although the US also contributed to this growth. DTC increased 3% globally. However, that was partially offset by ongoing pressure in the US online channel. DECK says the consumer is showing a strong affinity for updates made to HOKA brand's three largest franchises.
• What is really driving DECK's results is remarkable growth in its international markets, with HOKA and UGG both contributing to DECK's 50% increase in international revenue in Q1. This is welcome news as DECK navigates a choppy US consumer environment.
• UGG brand revenue grew 18.9% yr/yr to $265.1 mln. UGG wholesale increased 30% yr/yr while DTC decreased 1% with similar regional dynamics as HOKA. On DTC, Deckers is seeing pressure in the US related to consumer sentiment and in-store shopping preferences. International drove the bulk of growth for UGG in Q1, with EMEA and China contributing the largest gains. Also, Men's footwear grew at nearly 2x the overall brand rate. UGG is best known for its women's luxury winter boots. However, the brand has made headway in its goal to expand the brand for year-round appeal, including sandals, sneakers and it has been expanding its men's offerings.

Given all the negativity seen in recent quarters/guidance, we think sentiment was quite low heading into its Q1 report. Investors were thrilled to see the strong upside and in-line guidance. We suspect there were fears of another guidance cut, especially given the state of the US consumer and the high price points for its brands. Also, DECK is not known for discounting. The US was not great, but not horrible. However, the international side of the business was impressive. Investors were pleasantly surprised to DECK kick off FY26 on a good note.

Intel's (INTC) 2Q25 earnings report presented a mixed picture, with the chipmaker surpassing revenue expectations at $12.86 bln, driven by stronger-than-anticipated demand across its product lines. However, the company missed EPS expectations, reflecting ongoing profitability challenges that are significantly weighing on the stock. For Q3, INTC issued a similarly mixed view, forecasting revenue above expectations at $12.6-$13.6 bln, but projecting flat EPS, falling short of the FactSet consensus estimate of $0.04, signaling persistent pressure on margins and earnings.

• To preserve cash flow and bolster earnings, INTC announced aggressive cost-cutting measures, including the cancellation of planned factory projects in Poland and Germany, which have been idle since 2024, and a deliberate slowdown in the construction of its Ohio plant. CEO Lip-Bu Tan emphasized that INTC’s factory footprint had become “needlessly fragmented,” with capacity investments made in recent years far exceeding current demand, prompting a strategic pivot to optimize manufacturing and align spending with market realities.
• These moves, coupled with a $1.9 bln restructuring charge in Q2, reflect INTC’s focus on capital efficiency, targeting $18 bln in gross capital expenditures for 2025 and a reduction in operating expenses to $17 bln in 2025 and $16 bln in 2026.
• Despite the revenue beat, INTC’s gross margin plummeted by 9 percentage points yr/yr to 29.7%, well below the estimated 36.6%, driven by a combination of factors including an $800 mln non-cash impairment charge, accelerated depreciation of excess tools, and increased costs from tariffs. The shift toward a higher mix of outsourced products and the early ramp-up of the Panther Lake client product further pressured margins, as did competitive pricing dynamics in a market where INT faces intense competition from Advanced Micro Devices (AMD), Qualcomm (QCOM), and others.
• The Foundry segment remains a significant concern, with its operating loss widening to $3.2 bln in Q2 from $2.3 bln in Q1, despite a modest 3% revenue increase to $4.42 bln. Uncertainty surrounding the segment intensified following a Reuters report suggesting Tan might abandon external sales of the Intel 18A manufacturing process, though during the Q2 earnings call, Tan reaffirmed INTC’s commitment to Foundry, emphasizing its role in developing INTC’s own chips as a foundation for eventually attracting external customers. The segment’s struggles highlight the difficulty of competing with established players like Taiwan Semiconductor (TSMC).
• In contrast, the Data Center and AI (DCAI) segment showed resilience, posting a 4% revenue increase to $3.94 bln in Q2, following an 8% rise in Q1, driven by favorable yr/yr comparisons and growing demand for Xeon 6 CPUs and Gaudi 3 AI accelerators. Last quarter’s demand pull-forward due to tariff concerns makes the Q2 growth particularly encouraging, signaling improving traction in AI-driven markets. The upcoming launch of Clearwater Forest is expected to further bolster DCAI’s momentum, positioning INTC to capitalize on the expanding AI and data center markets despite competitive pressures.
• The Client Computing Group (CCG), however, continued to struggle, with revenue declining 3% to $7.9 bln in Q2, following an 8% drop in Q1, reflecting eroding market share to competition like AMD’s Ryzen processors and QQOM’s Snapdragon X series chips, which are gaining traction in the laptop market. Despite exceeding internal expectations for AI-friendly PC chips, with over 40 mln units projected for 2024, CCG faces intensifying competition that threatens INTC’s dominance in the client space. The upcoming Panther Lake launch is critical for CCG, as INTC aims to reinvigorate demand and reclaim lost ground in the PC market.

INTC is undertaking drastic measures to stabilize its financial position, including a 15-20% workforce reduction targeting a year-end headcount of approximately 75,000, the planned sale of non-core assets like Altera in Q3, and the idling of major projects in Poland, Germany, and Ohio. However, the company’s turnaround remains uncertain as it grapples with regaining market share from formidable competitors like AMD, NVIDIA (NVDA), and Arm Holdings (ARM), with its success hinging on execution in AI, foundry development, and upcoming product launches.

Chipotle Mexican Grill (CMG -13%) is under heavy pressure today after reporting its Q2 results last night. The burrito chain continues to operate in a challenging environment. The company has missed on revenue in 3 of the last 4 quarters. Perhaps just as discouraging to investors is that CMG also lowered its FY25 comp sales guidance to flat from low single digits.

• Comp sales declined -4% in Q2, with management noting Q2 "was probably the worst aggregate storm", due to lapping an extraordinary quarter last year. The decrease in comp sales guidance reflects ongoing volatility in the consumer environment, with management expecting a return to normal trends going into FY26.
• CMG did have some bright spots this quarter. It completed the rollout of produce slicers across all restaurants which should make them more efficient. Furthermore, it is seeing success in its new international markets. Its location in Kuwait completed its first year of operations, with revenue surpassing the average unit volume in the U.S.
• Despite the tough comps from a year ago, CMG's Q2 results were relatively lackluster. The slowing revenue growth and decrease in comp sales guidance are weighing more heavily on sentiment than the positives.

We think a big problem with CMG is that it doesn't really have a value menu like other fast-food restaurants. For example, Wendy's (WEN) has its Biggie Bag, and McDonald's (MCD) has its McValue menu. Where consumers feel stretched, these value items may be a more encouraging option. Also, CMG's higher price point relative to other fast-food restaurants may be exacerbating consumer hesitation.

On a final note, CMG recently went through some leadership changes, including a new CEO in November and a new COO in May. Investors are hoping they can spark a turnaround. CEO Scott Boatwright noted that COO Jason Kidd has already identified opportunities to improve the experience for both employees and guests that may have been "overlooked" by the prior COO.