We came across a bullish thesis on Bloomin’ Brands, Inc. (BLMN) on Value Don’t Lie’s Substack by Value Don’t Lie. In this article we will summarize the bulls’ thesis on BLMN. Bloomin’ Brands, Inc. share was trading at $16.84 as of Sept 9.
Bloomin’ Brands, the owner of well-known sit-down casual dining chains like Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Steakhouse, has seen its stock drop sharply by nearly 40% since March 2024, following a period of relative stability from March 2021 to March 2024, where shares traded between $25 and $29. Despite the sell-off, Bloomin’ offers a compelling investment opportunity due to its low valuation, activist involvement, and recent strategic changes.
Currently, Bloomin’ is trading at just 7x earnings and less than 5x EBITDA, making it one of the cheaper stocks in the restaurant sector. The company owns and operates 1,162 restaurants and franchises another 289 across 46 states and 13 countries. Outback Steakhouse is its largest brand, representing about 63% of its total locations. While Outback’s overall location count has grown over the last six years, the domestic numbers have declined, reflecting some of the broader challenges facing the company.
Activist investor Starboard Value, with a 10% stake in Bloomin’, is pushing for changes to enhance shareholder value. Starboard has highlighted a significant valuation and performance gap between Bloomin’ and its peers, such as Darden Restaurants (DRI) and Texas Roadhouse (TXRH). They see substantial potential for operational improvements, particularly in boosting margins, which currently lag behind competitors. Following Starboard’s involvement, two new board members were appointed in January 2024, and a strategic review of Bloomin’s Brazilian operations, which includes 159 company-owned locations, was initiated.
In terms of capital allocation, Bloomin’ recently undertook an accelerated share repurchase (ASR) program, buying back $220 million worth of shares at around $27 each, just before the stock began its decline. While the timing of the buyback appears to have been unfortunate, the company still has $130 million remaining under its buyback authorization. Bloomin’ also pays a 5.3% dividend yield, requiring an annual payout of approximately $83 million. Capital expenditures are higher than usual, with plans to open 40-45 new restaurants in 2024, indicating a continued commitment to growth despite challenging industry conditions.
The outlook for Bloomin’ suggests potential for a rebound. The retirement of its CEO and the strategic review of its Brazilian business could drive further changes, potentially leading to improved operations and better capital allocation. Although the ASR may have been a misstep, Bloomin’ remains attractively valued compared to its peers, with a low leverage profile and plans for expansion. These factors, combined with Starboard’s involvement, position the company for possible upside, making it an interesting stock to watch in the coming months.
Bloomin’ Brands, Inc.is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held BLMN at the end of the second quarter which was 29 in the previous quarter. While we acknowledge the potential of BLMN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as BLMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
