Since 2009, The Cheesecake Factory Incorporated (NASDAQ:CAKE) has been rising, climbing from around $7.15 per share in March 2009 to nearly $42.40 per share at the time of writing. In the past six months, it rose by more than 29.5%, outperforming the S&P 500’s return of only nearly 13.2%. Investment gurus Steven Cohen and Chuck Royce have accumulated this company’s shares, owning nearly 390,000 and 60,600 shares, respectively. Should we consider The Cheesecake Factory Incorporated (NASDAQ:CAKE) a good buy now? Let’s dig deeper.
Growing business performance and a strong balance sheet
The Cheesecake Factory Incorporated (NASDAQ:CAKE) is the operator of around 177 company-owned casual dining, full service restaurants under several brands including The Cheesecake Factory Incorporated (NASDAQ:CAKE), Grand Lux Café and RockSugar Pan Asian Kitchen. The company reported that it has begun to expand its footprint overseas, particularly in the Middle East and Latin America. In the past five years, The Cheesecake Factory Incorporated (NASDAQ:CAKE) experienced some growth in its top line, from about $1.6 billion in 2008 to $1.8 billion in 2012 while the net income rose from $52.30 million, or $0.82 per share to more than $98.4 million, or $1.85 per share during the same period. In the past three years, The Cheesecake Factory Incorporated (NASDAQ:CAKE) has consistently increased its comparable restaurant sales growth. In 2012, the comparable sales growth stayed at around 1.9%.
What I like about the company is its strong balance sheet with conservative capital structure. As of March 2013, it had $582 million in equity, $87 million in cash and no interest bearing debt. It recorded $95.45 million in deferred income taxes, which could be considered an interest-free loan from the government, and deemed landlord financing liabilities of more than $56.4 million. The company is trading at around $42.40 per share, with the total market cap of nearly $2.2 billion. The market values Cheesecake Factory at 9.2 times its trailing earnings before interest, taxes, depreciation and amortization (EBITDA).
It is cheap compared to its peers
Compared to Dunkin Brands Group Inc (NASDAQ:DNKN) and Krispy Kreme Doughnuts (NYSE:KKD), Cheesecake Factory is valued much cheaper. Dunkin Brands Group Inc (NASDAQ:DNKN) is trading at $44 per share, with the total market cap of more than $4.7 billion. The market values the company at more than 19.9 times its trailing EBITDA. Investors might be excited about Dunkin Brands Group Inc (NASDAQ:DNKN)’ nearly 100% franchised business, thus, the business is quite asset-light.
The franchise-based business model would allow Dunkin’ Brands to have the financial flexibility and enhance the company’s leveraged capital structure. In 2012, the company has returned $520 million to shareholders, including $450 million share repurchases within the year. In the first quarter 2013, Dunkin’ Brands also raised its quarterly dividend to $0.19 per share, from $0.15 per share in 2012. At the current price, the company offers investors a decent dividend yield at 1.8%. In the full year 2013, Dunkin’ Brands expected to grow its revenue by 6%-8%, with the adjusted operating income growth of 10%-12%. The EPS was estimated to stay in the range of $1.50-$1.53 while the free cash flow might come in at $125 to $135 million.
Krispy Kreme Doughnuts (NYSE:KKD) has the most expensive valuation among the three companies. At $19 per share, it is worth around $1.25 billion on the market. The market values the company at as much as 20.8 times its trailing EBITDA. Krispy Kreme Doughnuts (NYSE:KKD) is considered both a retailer and wholesaler of doughnuts and beverages and packaged sweets, operating around 748 shops in 22 countries, including 97 company-owned shops, 142 domestic franchise shops and 509 international franchise locations. Since 2006, the company has grown the international store count from 68 to 509. Its goal is to have 900 international store locations and more than 400 domestic stores in 2017. According to the company, it experienced consistent increase in its same store sales in the past four quarters. In the fourth quarter 2013, the same store sales growth reached 7.5%, thanks to higher traffic. For the full fiscal year 2014, Krispy Kreme Doughnuts expected to deliver around 4% to 7% comp sales growth, including 2%-5% organic growth and 2%-3% pricing growth. Its adjusted net income might come in at the range of $37 million to $40 million, higher than the adjusted net income of $32.9 million in the fiscal year 2013. Adjusted EPS was expected to be around $0.53 to $0.57 per share.
My Foolish take
Cheesecake Factory is an interesting stock at its current price due to its strong balance sheet, good historical growth and relatively undervalued valuation. Moreover, the company expects to grow its EPS by as much as 13%-16% in the next few years. Indeed, with the company’s overseas expansion plan, Cheesecake Factory might deliver quite decent results for long-term investors.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Cheesecake Factory Is a Delicious Pick originally appeared on Fool.com is written by Anh HOANG.
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