Citi has maintained its Neutral rating on Cheesecake Factory (NASDAQ: NASDAQ:CAKE) with a steady price target of $51.00.
The firm's analysis suggests that a potential split of the company's brands might not benefit shareholders, although activist movements could temporarily boost stock prices.
Cheesecake Factory has fully integrated its North Italia and Flower Child brands, and separating them could hinder the advantages they currently enjoy as part of the larger entity, such as in purchasing, property, and technology.
According to the firm, the value unlocked from a hypothetical split would vary greatly depending on the market multiples applied. For context, the market demonstrates a broad range of multiples with examples like Kura Sushi USA (NASDAQ:KRUS) trading at approximately 50 times forward-looking corporate earnings before interest, taxes, depreciation, and amortization (EBITDA), while FWRG trades at less than 10 times.
Nonetheless, a standalone Cheesecake Factory could be appealing to strategic investors due to its strong brand recognition, high sales volumes, and robust cash flow.
InvestingPro Insights
Recent data from InvestingPro adds context to Citi's analysis of Cheesecake Factory (NASDAQ:CAKE). The company's P/E ratio of 17.47 and adjusted P/E ratio of 14.43 for the last twelve months as of Q2 2024 suggest a relatively modest valuation, especially considering its PEG ratio of 0.22, which indicates the stock may be undervalued relative to its earnings growth.
InvestingPro Tips highlight that CAKE is "trading at a low P/E ratio relative to near-term earnings growth," aligning with the PEG ratio data and potentially supporting Citi's view on the company's strong operational position. Additionally, the tip noting that CAKE is "trading near 52-week high" (currently at 97.79% of its 52-week high) corroborates the analyst's suggestion that activist movements could boost stock prices.
The company's financial health appears solid, with revenue of $3.5 billion over the last twelve months and a gross profit margin of 41.48%. This robust performance supports Citi's assessment of Cheesecake Factory's strong brand recognition and high sales volumes.
For investors seeking a deeper dive into Cheesecake Factory's financials and prospects, InvestingPro offers 8 additional tips that could provide valuable insights for decision-making in light of the potential corporate restructuring discussions.
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