7 Turnaround Stocks and How They're Doing (CMG, TWTR, MCD)
When something needs to change.
Everybody loves the narrative of a come-from-behind victory. On Wall Street, those stories are often told over the period of several years. A well-executed turnaround plan typically means big bucks for investors, while a poorly executed plan can lead the company right down the path to bankruptcy. From Chipotle Mexican Grill (ticker: CMG) and Twitter (TWTR) to McDonald's Corp. (MCD) and Sears Holdings Corp. (SHLD), here are seven notable turnaround stocks -- and a brief look at how those turnarounds are currently faring.
Chipotle Mexican Grill (CMG)
In mid-October, 2015, Chipotle was trading above $750 per share. By January, CMG had bottomed out around the $400 level as skepticism regarding the company's ability to recover from a series of outbreaks reached a fever pitch. Chipotle adopted new food safety measures, introduced a loyalty program and cranked up its marketing in response to the issues. Aside from a norovirus scare at a Boston store in March, there haven't been any issues with Chipotle's food safety since December, but shares have been recovering slowly. It may take years for Chipotle's same-store sales to pick back up; they plunged 29.7 percent in the first quarter and 23.6 percent in the second.
JC Penney Co. (JCP)
JCPenney shareholders know that recoveries don't happen overnight. In fact, JCPenney has been in decline for much of the last 10 years, and in all-out turnaround mode since 2011, when activist investor Bill Ackman stepped in and hired former Apple (AAPL) exec Ron Johnson as CEO to come in and turn things around. Instead, Johnson boldly rejected the practice of discounting altogether, alienating longtime customers and sending sales plummeting. In 2013, Johnson was fired and JCPenney did away with its dividend, and only now is the havoc Johnson unleashed on the company being reversed. JCP is expected to report its first full-year profit since 2011 in fiscal 2016.
Sears Holdings Corp. (SHLD)
It's tough to call Sears a turnaround play because all its efforts to reverse its declines have been flamboyant failures. Revenue has fallen every year since 2007; when SHLD reports another revenue decline for 2016 it will be the 10th consecutive year of slumping sales. Sears CEO Eddie Lampert, who took over as CEO in 2013, has been selling off assets and closing stores by the hundreds to slow a steady decline in cash flows, but it looks now as if SHLD may go bankrupt before a turnaround can take place. Fitch Ratings recently said Sears posed a "significant default risk" within the next one to two years.
International Business Machines Corp. (IBM)
IBM, like so many tech companies of yore, is pivoting firmly into cloud computing, where the growth and enviable margins are. That's good, because the second quarter marked the 17th straight period of declining revenues, so shareholders are rightfully anxious for a change of pace. While overall revenue fell 3 percent in the second quarter, revenue from strategic imperatives -- the anchor of the turnaround -- rose 12 percent and cloud revenue jumped 30 percent. Analytics, security, and Watson Health should all also be exciting new drivers for Big Blue going forward, and may be able to help end the company's streak of ugly quarters sometime in 2017.
McDonald's Corp. (MCD)
When McDonald's CEO Steve Easterbrook took over for Don Thompson in 2015, same-store sales were on the decline and McDonald's found itself front and center in the "breakfast wars" that fast-food companies were waging against one another. He quickly laid out a turnaround plan that focused on boosting efficiency, refranchising 9 percent of all stores and generally doing "fewer things better." While company-wide revenue hasn't started growing again just yet, same-store sales are increasing, and the introduction of all-day breakfast has been a wildly popular initiative. The focus on simplicity and service appears to be paying off, making McDonald's one turnaround story that's working out well for shareholders.
Twitter (TWTR)
Twitter has essentially been in turnaround mode since mid-2015, when CEO Dick Costolo, sick of second-guessing from Wall Street, resigned. Co-founder Jack Dorsey was installed as interim CEO, then appointed full-time CEO that October, but his touch hasn't been able to fix Twitter's core problems: user growth and online abuse. Dorsey has brought streaming video -- and notably Thursday NFL games -- to the platform, which may be the reason companies like Walt Disney Co. (DIS), Salesforce.com (CRM), and Alphabet (GOOG, GOOGL) are reportedly interested in buying the company.
Sprint Corp. (S)
When Sprint CEO Marcelo Claure took the reins in August 2014, he was tasked with making the underperforming Sprint more competitive with Verizon Communications (VZ), AT&T (T), and a newly problematic T-Mobile US (TMUS). Sprint's attempt to buy T-Mobile had fallen apart, meaning Claure had to figure out how to grow organically. Using heavy price promotions and marketing, he began a turnaround, and in fiscal 2015 Sprint posted positive operating income for the first time in nine years. Churn, or the percentage of customers that drop service, was the lowest in company history. Now consistently gaining subscribers, Sprint shares are up more than 80 percent for the year.
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