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Not everyone in the food service
business is thriving. Higher input costs and a cautious
consumer
with less income on average have been thinning out the hungry herds at
some
restaurants. One unique company that
stands out in the space is Cracker Barrel.
Cracker Barrel (CBRL)
offers an affordable and tasty eat-in option
for locals (622 company-owned locations in 42 states) and a strong mail
order business
that sells everything from food to furniture and even music.
Heck they even produce and sell special
edition CDs that feature acts like Brad Paisley and LL Cool J (how’s
that for
diversity).
Their average restaurant check amount
has been steadily increasing
roughly 2.6% annually over the last 5 years (we have seen similar, but
more pronounced
strength in earnings in that time frame as well). Another
fact I found interesting was that they
have a fairly even split between breakfast, lunch and dinner traffic
which
keeps their restaurants and stores (mostly positioned just off major
interstates)
in a state of constant activity and operation.
Biglari
refuses
buyout
Perhaps the bigger (or at least more interesting) story is
not the stock’s earnings momentum, but the recent maneuvers by Sardar
Biglari
of Biglari Holdings (BH) who now owns $355+ million worth (19.99%
stake) of
Cracker Barrel. Mr Biglari has been
trying to shake things up a bit at the company and has failed to gain
the
control he wants.
Just recently, Cracker Barrel
Chairman James W. Bradford Jr.
offered to buy back Biglari Holdings’ shares at market price, which
would allow
Biglari to make roughly $70 million appreciation on his stake, but he
refused. Biglari owns Steak and Shake, a competitor
and has tried (and failed) to gain seats on the board of CBRL over the
last 3
years through proxy battles.
It seems Mr. Biglari sees upside in
CBRL regardless of his
diversions, which adds value to the stock here in my opinion.
Do
earnings justify the rally?
In the most recent quarter, Cracker Barrel posted a 0.2%
increase in comparable store traffic, with a 3.3% increase in
same-restaurant
sales. This marked the fifth consecutive quarter of increased traffic
and
sales. On an adjusted basis, operating income margin grew by nearly one
point,
to 8.4%. Adjusted EPS for the quarter came in at $1.43, versus $1.20 in
the
year-ago quarter. Revenue grew nearly 4.5% to nearly $702.7 million.
Their guidance was a bit on the
conservative side, with
expectations in the $4.60 to $4.80 range compared with 2012 full year
EPS of
$4.61. The Zacks consensus estimates are closer to the high end at
$4.73 per
share. In 2013 the company is expected
to open 9- 11 new restaurants and stores.
Earnings momentum has been strong
despite some doubts surrounding
return on capital, the stock has delivered earnings growth and analyst
continue
to up their estimates in the company.
Cracker Barrel reports on May 21st and has a positive ESP of
1.08% for the current quarter.
Shares currently trade at 16 times
forward earnings, which
is actually low for the space.
A
good value?
I certainly wouldn’t
use the word “value” to describe shares of CBRL, but looking at the
majority of
their peers, relative value is certainly appropriate. Shares have
appreciated
20% in the last month alone, which is something to take into
consideration, but
that rise may be justified.
Soft commodity
prices should remain somewhat stable and barring another major drought,
shouldn’t
rise back to their peaks of last year.
Cracker Barrel has already secured 45% of their commodity related needs
as
of Sept. 19, 2012.
The company expects
comparable store restaurant and retail sales to increase anywhere from
2% to 3%
in 2013. This includes menu price
increases of about 2% and accounts for commodity inflation of 5.0% to
6.0%
That should equate
to total revenue between $2.6 and $2.65 billion according to their
estimates and
with analysts’ opinions looking bullish, I’d expect a strong year as
well.
Cracker Barrel and
Red Robin are the only Zacks Rank #1 stocks in the space; Red Robin (RRGB)
was
recently upgraded as well, but trades at 21 times forward earnings.
Other competitors like Bloomin Brands (BLMN),
Burger
King (BKW),
Jack in the Box (JACK)
and others have lower Zacks Ranks and higher multiples.
The
Charts
Cracker Barrel has
maintained relatively stable stock growth over the last two years.
It hasn’t been below its 200 day moving average
in that time and has recently gained momentum after reporting strong
results.
Look for some
support around the 20 day moving average of $77.45, with substantial
technical support
around the $70.86 area which is where the lows of the earnings gap
coincide with
the 50 day moving average and VWAP.
Shares are currently
forming a sideways to moderately bullish channel and are near the top
of their recent
range. Resistance will be minimal at the
52 week high of $81.42.
All in all it’s a good
dividend stock (yields 2.6% annually) with strong earnings momentum and
a
favorable Zacks Rank.
Jared
A Levy is one of the most highly sought after traders in the world and
a former
member of three major stock exchanges. That is why you will frequently
see him
appear on Fox Business, CNBC and Bloomberg providing his timely
insights to
other investors. He has written and published two tomes, “Your
Options Handbook” and “The
Bloomberg Visual Guide to Options”. You can
discover more of his
insights and recommendations through his two portfolio recommendation
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BURGER KING WWD (BKW): Free Stock Analysis Report
BLOOMIN BRANDS (BLMN): Free Stock Analysis Report
CRACKER BARREL (CBRL): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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