The Cheesecake Factory: Have Your Cake and Eat It Too

The Cheesecake Factory: (CAKE) June 12, 2008 close: $17.36

52-week range: $17.24 [Jan. 22, 2008] - $28.24 [Aug. 9, 2007]

The Cheesecake
Factory operates 154 casual dining restaurants including 13 larger and
more upscale Grand Lux Café units. Third party bakery sales including
Costco (COST) account for about 5% of sales.


CAKE
is a former high-flying growth stock that was loved by all while it
traded at extremely high valuations. It earned that status by taking
EPS from [split adjusted] $0.10 in 1996 to $1.09 in 2005 with higher
earnings in each year along the way. During most of that run,
Cheesecake Factory commanded P/Es of 28x – 36x. Even now its 10-year
median multiple is 32x.


The
economic slowdown along with higher food and labor costs, have stalled
earnings since 2005. EPS dipped to $1.02 in 2006 before nudging back up
to $1.04 last year. Despite a year-over-year dip in Q1 earnings it is
expected that CAKE will show a full year increase to $1.13 in 2008.
Analysts see continued share buy backs and menu price increases leading
to $1.29 per share by 2009.