By Jake Lynch, TheStreet

 

Cracker Barrel (CBRL) is succeeding in the dog-eat-dog restaurant industry with old-fashioned American charm. The eatery has outperformed the closely watched Knapp-Track Index of comparable-store traffic for 16 consecutive quarters.

 

Analysts are bullish on Cracker Barrel, which is less sensitive to changes in the economy than its casual-dining competitors because of its lower-priced dishes. The southern chain serves comfort food, with a menu that includes Country Meat 'n' Biscuits and Apple Streusel French Toast. Breakfast is served all day, with separate lunch and dinner menus.

 

A retail store is attached to each restaurant, selling collectibles, old-fashioned toys and penny candy. This restaurant-retail concept is rarely used in the restaurant industry but seems to be succeeding. Cracker Barrel posted a comparable-restaurant sales gain of 2% and a comparable-retail-sales increase of 2.6% in the latest reporting period.

 

Fiscal-fourth-quarter net income increased 20% to $27 million, or $1.14 a share, as revenue grew 2.8% to $612 million. The operating margin inched up from 7% to 7.4%. Cracker Barrel's balance sheet is poorly capitalized, with $48 million of cash and $581 million of debt, converting to a debt-to-equity ratio of 3. But cash more than tripled from the year-earlier tally, and debt decreased by 10%. The benefit of debt financing is higher return on equity.

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The quarterly figure dropped from 49% to 44%, beating the S&P 500 ($INX) average of 13% and the industry average of 26%. Return on assets remained modest, climbing from 5.3% to 6.6%. Cracker Barrel's stock has advanced 38% in 2010, outperforming U.S. indexes. Post continues after video:

Analysts are bullish on its trajectory. Eight rate the stock "buy," and two rate it "hold." None rank it "sell." A median target of $57.17 suggests 9% of potential return. But Sidoti & Co. expects the stock to rise 22% to $64, and Stifel Financial (SF) forecasts a gain of 14% to $60.

 

Despite its impressive performance, Cracker Barrel's stock is comparatively cheap. It trades at a trailing price-to-earnings ratio of 14, a forward price-to-earnings ratio of 11, a sales multiple of 0.5 and a cash flow multiple of 5.5 -- 51%, 56%, 83% and 59% discounts to hotels, restaurants and leisure industry averages.

 

But the stock is expensive based on book value, carrying a multiple of 6.1. Cracker Barrel recently boosted its quarterly dividend to 22 cents, translating to an annual yield of 1.8% and a modest payout ratio of 22%.

 

CEO Michael Woodhouse makes a compelling argument in his quarterly commentary. "As we look forward to 2011, we continue to face the uncertainty from low economic growth and a slow recovery," he says. "What we do know is that families dining out remain focused on value."

 

In casual dining, Cracker Barrel is perhaps the safest stock play. TheStreet rates it "buy" with a $67.10 price target.

 

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