Inside Wall Street: 3 appetizing casual-dining stocks

The popularity of recession-proof restaurants has remained strong even as the economy gains.

By Gene Marcial Apr 10, 2012 9:11AM

Eating in reasonably priced casual-dining restaurants is becoming the norm with folks and families even as the economy is starting to gain ground. These eateries are the popular destinations in tough economic times because they serve familiar comfort food at affordable prices, and usually in familiar friendly settings.


The casual-dining concept has caught on, according to some restaurant analysts, who note that the idea of going casual for a family lunch or a night out, has gained wide acceptance across the country.


So restaurants in the casual-dining segment of the broad and fragmented industry have fared well even through the recession, notes Will Slabaugh, restaurant analyst at investment bank Stephens.


"The key industry trends to watch in the coming quarters and years include operating cost environment amid unstable commodity prices, consumer sentiment, discretionary spending, scarcity of concept growth, as well as broader macroeconomic indicators," says the Stephens analyst.


Three casual eateries that have performed superbly in sales and earnings growth in the past two years and should continue to do so. These are names most investors probably have heard of only occasionally: Red Robin Gourmet Burgers (RRGB), Cheesecake Factory (CAKE) and Buffalo Wild Wings (BWLD).


Shares of Buffalo Wild Wings have climbed more than 56% in a year, closing at $86.60 a share on Mar. 9, 2012, and Red Robin Gourmet Burgers stock advanced about 35% in 12 months, closing at $35.55. Cheesecake closed at $29 a share, not far from its 52-week high of $34, and up from a 52-week low of $23.65.


Despite their gains, "we see a lot more upside potential for these stocks," says Slabaugh, "as we believe their upward momentum has just started." He rates the three stocks as "overweight." The analyst projects Buffalo Wild Wings will hit $110 a share in 12 months and sees Red Robin Gourmet climbing to $47 a share. His 12-month price target for Cheesecake stock is $37.    


He says his sales and earnings projections support his optimism toward the stocks. "Their growth stories still remain undervalued and under-appreciated," says Slabaugh.


After a recent meeting with management at Buffalo Wild Wings, Slabaugh says he is more convinced about the "growing national acceptance and momentum of the brand."

Based in Minneapolis, Buffalo Wild Wings offers a flexible dining experience: Each restaurant provides a family-friendly, multi-media dining experience featuring numerous large screen television sets and interactive trivia games to complement its sports bar atmosphere, says Slabaugh. With its 730 restaurants throughout the U.S., the company's food specialty is New York-style chicken wings, complemented by 14 different types of sauce and a varied menu of sandwiches, entrees and desserts.


The analyst forecasts Buffalo to earn $3.38 a share in 2012 on projected revenues of $1.12 billion, up from $2.83 a share in 2011, on sales of $784.5 million, and way up from $2.21 a share, on $613.3 million in sales in 2010.


At Colorado-based Red Robin Gourmet Burgers' 450 restaurants, the specialties are "unique hamburgers, bottomless steak fries, and an assortment of drinks and dessert offerings," notes Slabaugh. "We believe RRGB is still under-penetrated and will continue to grow via franchising and development of new company-owned units for the foreseeable future," he says.


The analyst forecasts Red Robin will earn $1.88 a share in 2012, on revenues of $996.9 million, up from 2011's $1.58 a share on sales of $914 million. In 2010, the company earned just 42 cents a share on sales of $864.3 million.


California-based Cheesecake Factory operates 149 high-volume full-service casual eateries and 13 upscale casual-dining restaurants under the name Grand Lux Café, and one Rock Sugar Pan Asian Kitchen. The latter is the company's new concept featuring Thai, Vietnamese, East Indian, Malaysian, and Indonesian cuisine, which opened in June 2008.

Cheesecake Factory is a "very strong, top-notch operator in the industry," says Slabaugh. He sees the company earning $1.86 a share in 2012, on revenues of $1.84 billion, up from 2011's $1.65 a share on sales of $1.76 billion. In 2010, Cheesecake made $1.35 a share on sale as of $1.66 billion.     


"It's a pleasurable and unique eating experience to go to any one of these three restaurants, each offering diverse food and dining satisfaction," says Slaubaugh. And as investment vehicles in the industry, their stocks also offer rewarding menus for investors' portfolio.

Gene Marcial wrote the column “Inside Wall Street” for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.

Apr 10, 2012 12:00PM
investing in these is like throwing away money. they can tank at any time. 
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