On Wednesday, Stephens raised the stock price target for Cheesecake Factory (NASDAQ:CAKE) shares from $50.00 to $51.00, while sustaining an Overweight rating on the stock. The firm highlighted the company's solid third-quarter 2024 results, which surpassed expectations with robust same-store sales growth. This success was attributed to increasing customer traffic each month, culminating in a positive run-rate at the quarter's end.
The positive performance also included better-than-anticipated restaurant-level margins and continued expansion through new unit openings. However, these gains were somewhat balanced by expected performance levels at North Italia, a part of Cheesecake Factory's portfolio. The firm predicts that Cheesecake Factory will maintain its upward trajectory through the fourth quarter of 2024 and into the fiscal year 2025.
According to the analyst, Cheesecake Factory is well-positioned when compared to its full-service restaurant peers, especially in terms of relative valuation. The company's ongoing ability to outperform its competitors in customer traffic, along with an improving product mix, is anticipated to bolster same-store sales and restaurant margins moving forward.
The revised price target of $51.00 reflects an enterprise value to EBITDA (EV/EBITDA) multiple of approximately 9.4 times Stephens' next twelve months (NTM) EBITDA estimate for Cheesecake Factory. This valuation aligns with the company's 10-year average multiple of around 9 times, suggesting that the stock's momentum is supported by historical performance metrics.
In other recent news, Cheesecake Factory has been drawing attention with its third-quarter earnings and revenue results. The company reported adjusted earnings per share of $0.58, surpassing analyst expectations of $0.48. However, its revenue of $865.47 million fell slightly short of the projected $866.13 million, yet still represented a year-on-year increase of 4.2%.
In addition to these financial figures, the company reported a 1.6% increase in comparable restaurant sales compared to the same quarter last year, marking the fourth consecutive quarter of year-on-year top- and bottom-line growth. Furthermore, Cheesecake Factory continued its expansion, opening four new restaurants during the quarter and three more after quarter-end, totaling 17 new openings year-to-date.
Citi maintained a Buy rating on Cheesecake Factory, raising the price target to $55.00 from the previous $51.00. The firm's positive outlook was influenced by the company's strategy of targeting higher-income customers and providing a unique dining experience, which resulted in same-store sales and traffic surpassing industry averages. Citi's analysis also suggests potential for significant margin benefits as the company's operations continue to grow.
The Cheesecake Factory also repurchased approximately 29,450 shares at a cost of $1.1 million in Q3 and declared a quarterly dividend of $0.27 per share. These are the latest developments in the company's recent activities.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Stephens' positive outlook on Cheesecake Factory (NASDAQ:CAKE). The company's P/E ratio of 17.76 and adjusted P/E ratio of 14.57 for the last twelve months as of Q2 2024 suggest a relatively modest valuation, especially considering the company's recent performance and growth prospects.
An InvestingPro Tip highlights that CAKE is trading at a low P/E ratio relative to its near-term earnings growth, which aligns with Stephens' view on the company's attractive valuation compared to peers. This is further supported by a low PEG ratio of 0.23, indicating that the stock may be undervalued relative to its earnings growth potential.
Another InvestingPro Tip notes that the stock price has seen a large uptick over the last six months, which is corroborated by the impressive 25.97% price total return over the same period. This momentum supports Stephens' optimistic stance on the company's future performance.
For investors seeking more comprehensive analysis, InvestingPro offers 10 additional tips for Cheesecake Factory, providing a deeper understanding of the company's financial health and market position.
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