Bull CBRL 032613
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.
![](http://staticzacks.net/images/zacks/blogs/1364325135_scaled_425.jpg)
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
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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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