Let me preface this column on a handful of restaurant stocks that I find interesting with the following: overall, I am no fan of the restaurant sector, due to what I consider to be excessive valuations. Take Chipotle (CMG) , for instance, one of the great growth stories of the past several years. However, after topping out in the $750 range in mid-2015, and running into some operational issues, the stock has fallen 56%. Yet, it still trades at 38X this year's consensus estimates (30 X 2019 consensus); great food, great concept, great growth story, just expensive.
The industry itself is in an interesting spot; the growth in publicly traded restaurant names the past several years, which led to a glut of sorts, has been supplanted by a rash of acquisitions, many of them private equity. Over the past two years, the list includes Panera Bread, Bob Evans, Ruby Tuesday, Buffalo Wild Wings, Krispy Kreme Doughnut, and most recently, Fogo de Chao, (three of which, Bob Evans, Ruby Tuesday, and Krispy Kreme I owned).
My own rather short list of restaurant favorites, is a combination of cheap valuations, and potential takeover targets, and included the following:
Dine Brands (DIN) - Parent of Applebee's and IHOP, which was one of 2017's worst performing restaurant stocks, has had a nice run since the beginning of 2018 (+39%). Yet, it still trades at just under 12 X next year's consensus earnings estimates, one of the cheapest in the sector. The company operates under an-all franchise model, which is where the industry has been heading. Currently yielding 3.5%, the company did recently reduce the dividend from 97 cents/quarter to 63 cents, but in this case, the market yawned. Applebee's has been doing a nice job with the menu and drink and appetizer specials; we'll see if this translates into the bottom line.
Cracker Barrel (CBRL) - This iconic brand has had quite a run over the past several years, yet continues to chug along, at a reasonable 16 X next year's consensus estimates. Currently yielding 3%, based on its regular $1.20 quarterly dividend, the company has also been paying special dividend for the past several years, including $3.50 last May. CBRL also remains real estate rich, owning 418 of its 645 locations, yet its net-debt (debt less cash) stood at just $232 million at its latest quarter end. My exposure to CBRL comes in the form of owning Biglari Holdings (BH) , which owns 20% of the company. CBRL might make an interesting target for someone; not sure that Biglari Holding's pockets, however, are deep enough to take out the rest of the company.
Bloomin' Brands (BLMN) - Trading at 15 X next year's estimates, and with activist Barington Capital involved, BLMN remains interesting. I have yet to take a position however. Shares were down about 3% yesterday, and that's likely due to the announcement that activist Jana Partners, reduced its stake in BLMN from 8.6% to 6.4%. Barington wants BLMN to spin off three of its brands, Bonefish Grill, Carrrabba's Italian, and Fleming's Prime Steakhouse and Wine Bar into a separate company, leaving its flagship brand, Outback Steakhouse as a separate company. The theory is that doing so will enhance shareholder value. In a way, this reminds me of the Bob Evans situation, which took a couple years to play out. Still, it is one to watch. BLMN yields 1.55%.