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Investor Indigestion

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The nation's third largest hamburger chain guided lower this morning. The blame: the economy. Wendy's (NYSE:WEN) said earlier today that its fiscal '02 earnings could miss expectations by a measurable amount. The company guided to a range of $1.83 to $1.88 per share in profits, while expectations had been for $1.89 in earnings per share. Shares of Wendy's were lower by about 2 percent at time of writing.

Separately, shares of Krispy Kreme Doughnut (NYSE:KKD) remained under pressure after the company's accounting practices fell under scrutiny. A newspaper article this morning highlighted Krispy's use of a special purpose entity to reduce costs of opening new stores. Shares of Krispy Kreme were lower by 2.25 percent at the time of writing.

Restaurants have been one of the better performing industry groups in the last 12 months for their perceived economic immunity, or at least for their defensive nature. The recent news from the group combined with its overbought nature might shift risk to the downside among some of the bigger names in the group. Those bigger names include:

McDonald's           (NYSE:MCD)
Starbucks         (NASDAQ:SBUX)
TRICON Global        (NYSE:YUM)
ARAMARK              (NYSE:RMK)
Darden               (NYSE:DRI)
Brinker Int'l        (NYSE:EAT)
Outback Steakhouse   (NYSE:OSI)
Cheescake Factory (NASDAQ:CAKE) 

Pacificare (NASDAQ:PHSY)

The State of Texas filed suit against Pacificare Monday based on claims of slow payments from the company, which forced other health care providers into bankruptcy. The state is asking Pacificare to stop doing business in Texas until the company complies with its laws. Shares of Pacificare wee lower by $2.82 in afternoon trading. The retracement levels below may serve to define any potential downside stemming from the news today.

PHSY - Daily

Eric Utley
Option Investor

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