On Wednesday, Deutsche Bank maintained a Hold rating on Cheesecake Factory (NASDAQ:CAKE) shares, while increasing the price target to $48.00 from the previous $38.00. The adjustment follows Cheesecake Factory's report of a strong third quarter, which showcased better-than-expected same-store sales (SSS), restaurant margins, and earnings per share (EPS).
The company's SSS growth of 1.6% surpassed expectations and reflected an improving trend throughout the quarter. This uptick was consistent with the broader industry and included a notable increase in customer traffic in September. The Cheesecake Factory 's 4-wall margin stood at 15.7%, which was in line with its 2019 performance, despite some pressure from the introduction of new concepts.
Cheesecake Factory's restaurant margin reached 13.8%, exceeding forecasts. The company has provided guidance for the fourth quarter and the year 2025, anticipating revenue figures slightly below the consensus. This outlook includes a reasonable SSS growth projection of 1-2% and anticipates continued restaurant margin expansion, mainly driven by improvements in labor productivity and cost of goods sold (COGS) leverage.
Despite recognizing the company's recent strong performance, Deutsche Bank noted that further price and margin expansion could be more challenging by 2025 due to industry headwinds. Investors may also be looking for stabilized sales and margins from the smaller concepts before incorporating growth expectations into the share price. Given these considerations and the current valuation, Deutsche Bank has decided to maintain their Hold rating on the stock.
In other recent news, The Cheesecake Factory has made headlines with its third-quarter earnings and revenue results. The restaurant chain reported adjusted earnings per share of $0.58, exceeding analyst expectations of $0.48. Despite its revenue of $865.47 million falling slightly short of the projected $866.13 million, it still marked a year-on-year increase of 4.2%. The company also noted a 1.6% increase in comparable restaurant sales compared to the same quarter last year, marking the fourth consecutive quarter of year-on-year growth.
Stephens and Citi have both revised their price targets for The Cheesecake Factory, with Stephens raising it to $51 and Citi to $55, maintaining an Overweight and Buy rating respectively. Both firms attribute this to the company's solid performance and potential for continued growth. The Cheesecake Factory also continued its expansion, opening seven new restaurants during and after the quarter, bringing the total to 17 new openings year-to-date.
In addition to these financial accomplishments, The Cheesecake Factory 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 adds depth to Deutsche Bank's analysis of 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. This aligns with an InvestingPro Tip indicating that CAKE is trading at a low P/E ratio relative to near-term earnings growth.
The company's revenue growth of 2.74% over the last twelve months and 4.37% in Q2 2024 supports Deutsche Bank's observation of improving sales trends. Additionally, CAKE's EBITDA growth of 29.3% in the same period demonstrates strong operational performance, which is reflected in the better-than-expected restaurant margins noted in the article.
Another InvestingPro Tip highlights that CAKE is trading near its 52-week high, with the stock price at 97.83% of its 52-week high. This corresponds with the significant price uptick over the last six months, as indicated by the 25.97% price total return over that period.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Cheesecake Factory, providing a deeper understanding of the company's financial health and market position.
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