Everyone is looking for mouthwatering ideas... the kind that
just make you drool since they are so enticing. I have three of
them, and they will excite you on multiple levels.
Hopefully you are not reading this article on an empty stomach....
Let Them Eat Cake
Cheesecake Factory (CAKE)
recently appeared on my radar screen even though I have been going
to this restaurant and the Grand Lux for several years. My personal
favorites include the baked potato soup and just about anyone of
the "Glamburgers" they have on the menu.
Beyond all the good food, investors will enjoy a solid earnings
history. Over the last 18 earnings reports, the company has twice
missed and twice met the number, all the other times have been a
positive earnings surprise. The most recent earnings release was in
late April for the March 2013 quarter. The company beat the Zacks
Consensus Estimate of $0.42 by a nickel for an 11.9% positive
The June quarter is carrying some big expectations, with analysts
calling for revenue of $475M and EPS of $0.57. Just meeting this
number would make for a highly favorable comparison to the year ago
revenue of $455M and $0.51 in EPS. The growth is likely due to a
stronger consumer that has more discretionary income.
Estimates for CAKE have been inching higher over the last several
months. The Zacks Consensus Estimate was sitting at $2.14 in March
and has pushed higher to $2.16 in May and is now at $2.17. The same
could be said of the 2014 Zacks Consensus, with the number moving
from $2.43 to $2.46 to $2.47 over the same time period. That
implies a 13.8% growth rate for earnings.
The valuation for this Zacks Rank #2 (Buy) stock are right in line
with the industry average for most every metric. A 20x forward
earnings multiple is slightly higher than the 17x industry average,
but what I like to see is CAKE's higher net margin (5.6%) compared
to the industry average (3.6%). Along with the 13.8% earnings
growth rate, analysts are looking for 7.5% growth on the top line,
and that is 33% above the 5% industry average.
Don't be Chicken
Pilgrim's Pride (PPC)
is a chicken producer that is another mouthwatering play. It is not
clear if they are a supplier of CAKE, but they are for Yum Brands,
Wendy's, Burger King and ConAgra Foods. On the retail side, PCC
sells to grocers like Walmart, Publix, Kroger and SuperValu among
I have seen some tangential evidence of a good quarter upcoming for
PPC. There have been channel checks that suggest several
restaurants like CAKE and specifically BWLD are trending ahead of
expectations. Especially when a name like BWLD is mentioned to have
good things coming due to their reliance on chicken wings in
Estimates for FY2013 have been moving higher and higher. The 2013
calendar year started out with the Zacks Consensus sitting at
$0.86, but that number jumped to $1.31 in April, and then again to
$1.49 in May and now sits at $1.65. That is some excellent growth
of nearly 100% in just six months.
The picture for 2014 is a little less clear, but still shows some
growth. The Zacks Consensus for next year started the year at $1.18
and ticked higher to $1.22 in April. A big move up to $1.41 the
following month and a subsequent move to $1.47 at the current
The valuation picture for PPC is a good one. With a trailing PE of
20.8x the stock trades at a very small premium to the industry
average of 19.5x. Not that great, but not that bad either. The
impressive valuation metric is the forward PE of 9.3x compared to
the 18x industry average. That is a significant discount for such a
large player in the industry. The price to book of 4.1x carries a
small premium to the 3.6x metric for the industry. Price to sales
of 0.5x is only a fraction of the 2.4x industry average, so lots of
room to expand there.
Now That You Gained All That Weight
makes a supplement for consumers that feel like all that chicken
they have eaten at CAKE and supplied by PPC is starting to form a
spare tire around their mid-section. Don't think the supplement
alone will help you lose the extra weight, you need to exercise as
HLF has been the subject of two major short attacks over the last
year and a half. First David Einhorn got on the earnings conference
call and asked about the company tracks the sales of its marketers.
The multi-level marketing model wasn't clear to most investors and
the stock was hurt. Then Bill Ackman came into the mix later in
2012 year and said the company was an outright fraud and needs to
be investigated by the FTC.
Dan Loeb and Carl Icahn are both large scale buyers of the stock,
so with the shorts there are some longs. Loeb is mostly out of the
stock by now, but Icahn is still in the stock in a big way.
HLF has a great history of beating the number. I would go so far as
to say it's a perfect record with 27 straight positive earnings
surprises. The most recent report saw a beat of $0.20 or an 18%
positive earnings surprise. The company also beat on the top line
as well and has done so in each of the last 16 quarters (4 years).
Estimates for HLF have been moving higher throughout the year.
Starting the year at $4.64, the Zacks Consensus Estimate has just
moved higher throughout the year. A big pop came April, following
the earnings release, when the number moved to $4.77 and has since
ticked higher to $4.81. Over the same time period the 2014 Zacks
Consensus Estimate has moved from $5.19 to $5.50 and is now at
The valuation for HLF is a great one, with nearly every metric
investors look to showing the company trading at a discount to the
industry average. The 10x forward PE is one that might even get
value investors interested in the stock! The only metric that is a
little heavy is the price to book, but that concern goes out the
window when the 14% topline growth rate for this year is nearly
triple that of the industry average. The net margin of 11.5% is
also nearly triple that of the industry average which comes in at
Mouthwatering stocks don't just have to be about food, they can be
about weight loss too! The key is to find stocks that have a high
Zacks Rank and exhibit great growth prospects and good valuations.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
in charge of the
Run Investor service
, a Buy and Hold service where he recommends the stocks in the
Brian is also the editor of
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a trading service that focuses on small cap stocks and also carries
a risk limiting strategy.
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