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 (
) 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
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
It seems Mr. Biglari sees upside in CBRL regardless of his
diversions, which adds value to the stock here in my
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 (
) was recently upgraded as well, but trades at 21 times forward
earnings. Other competitors like Bloomin Brands (
), Burger King (
), Jack in the Box (
) and others have lower Zacks Ranks and higher multiples.
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
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"
"The Bloomberg Visual Guide to Options"
. You can discover more of his insights and recommendations
through his two portfolio recommendation services:
- Learn to buy stocks likely to have robust earnings BEFORE they
- Technical Analysis + Zacks Rank. Best of both worlds approach
to find timely trades.
Follow Jared A Levy on twitter at @jaredalevy
Like Jared A Levy
BURGER KING WWD (BKW): Free Stock Analysis
BLOOMIN BRANDS (BLMN): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
To read this article on Zacks.com click here.