The Cheesecake Factory (NASDAQ:CAKE) has put together two solid quarters of revenue and earnings that have surpassed expectations and surprised investors. The stock is up over 20% over the past year, with potential for further upside due to projected earnings and revenue growth. The shares trade at a discount, making CAKE an attractive consideration for long-term value investors.
Cheesecake’s Growing Empire
The Cheesecake Factory is a restaurant chain renowned for its vast menu of over 250 items and its annual sales of approximately 35 million cheesecake slices. It is known for consistently drawing crowds despite long waiting times, underscoring steady consumer demand. The company primarily caters to higher-income customers, providing financial stability amidst economic downturns.
The Cheesecake Factory operates supplementary restaurant chains such as Flower Child, North Italia, and Fox Restaurant Concepts, which diversifies its revenue streams. The company has planned further expansion with the inauguration of 22 new locations in 2024 while also extending its market reach to countries like Mexico and Thailand.
Operational enhancements have also been a significant focus for the company. It improved productivity and efficiency through increased labor retention and a more predictable pattern of commodity inflation. These changes have reduced unexpected expenses and contributed to overall operational stability.
Cheesecake’s Recent Financials & Outlook
The Cheesecake Factory recently published its Q1 results for fiscal 2024. The Company reported revenue of $891.2 million, an increase of 2.9% year-over-year, beating forecasts by $1.25 million. Non-GAAP EPS of $0.73 also exceeded predictions by $0.09. Despite this, comparable restaurant sales saw a decline of 0.6% year over year.
As of April 2, 2024, the company’s available liquidity was $296.7 million, including a $60.2 million cash balance and an available $236.5 million on its revolving credit facility. The total debt outstanding was $475 million, composed of $345 million in principal amount of 0.375% convertible senior notes due by 2026 and $130 million in the principal amount drawn on their revolving credit facility.
In the first quarter of fiscal 2024, the company bought back around 359,400 shares, costing $12.5 million. Furthermore, the Board of Directors has sanctioned a quarterly dividend of $0.27 per share, due for payment on June 4, 2024. Management has also reaffirmed its FY24 revenue projection of around $3.6B, with the consensus at $3.62B, and predicted a net income margin of around 4.25%.
Is CAKE Stock a Buy?
Analysts following the company have divergent opinions on the stock. Leading the bullish charge, Stephens analyst Jim Salera recently raised the price target from $45 to $50 while keeping an Overweight rating on the shares. Due to its strong operations, brand loyalty, and growing footprint, the company has been named the “Best Idea” in the firm’s restaurant coverage.
Overall, the Cheesecake Factory is rated a Hold based on the ratings and price targets assigned by 11 Wall Street analysts over the past three months. The average price target for CAKE stock is $39.80, representing a 6.19% upside from current levels.
The stock has been trending upward, climbing over 20% in the past year. It sits in the upper half of its 52-week price range of $28.58-$41.25 and demonstrates positive price momentum, trading above its 20-day (36.89) and 50-day (35.82) moving averages. The shares trade at a relative discount with a P/E of 17.19x, well below the Restaurant industry average of 25.26x.
Conclusion on CAKE
The Cheesecake Factory has showcased a sturdy performance over two consecutive quarters, surpassing predictions while offering a solid growth projection. Despite the decline in comparable restaurant sales, the stability provided by its diverse revenue streams, strategic operational enhancements, and continued market expansion underpin its resilience and potential.
The company’s financial health, displayed in its significant liquidity and disciplined approach to share buybacks and dividends, adds to its allure, making the stock an attractive option for long-term value investors.
