Stifel Says Buy Cheesecake Factory On Pullback After 3Q Miss

Stifel issued a note on The Cheesecake Factory Inc. CAKE Thursday after the company missed 3Q 2014 earnings expectations.  The firm maintained a Buy rating and lowered its price target from $58 to $56.

Analysts Paul Westra and Michael Olsen defended “Buy-rated CAKE shares on expected modest weakness after CAKE posted a worse 3Q14 release that included -$0.09 worse 3Q14 EPS of $0.48 (vs. our/consensus’ $0.58E/$0.57E).”

Management issued “$0.03 worse 4Q14 EPS guidance of $0.58-$0.62 (vs. our now/consensus’ prior $0.62E/$0.63E)” and “$0.18 below-consensus initial 2015 EPS guidance of $2.35-$2.45 (or +15 percent yr/yr; vs. consensus’ $2.58E),” according to Westra.

Westra felt that management’s 2015 EPS guidance “will prove too conservative...because it assumes that 2015 will have a similar industry backdrop as 2014’s; whereas we believe there is a ‘rising-tide’ dining-out recovery underway that will continue through 2015-16.”

The report concluded that “the majority of the dairy-priced-driven 2H14 EPS miss was already imbedded in CAKE’s share price; and that 4Q14/2015 EPS guidance was ‘kitchen-sinked’ – and we thus recommend new purchases on a potential pullback.”

The Cheesecake Factory Inc. traded at $42.26 in the premarket, down 5.03 percent.