JPMorgan: Bloomin' Brands Shares Are Trading At Unwarranted Discount To Peers

Despite sustained traffic outperformance versus its peers — which are also benefiting from an improvement in the casual dining environment — Bloomin' Brands Inc BLMN shares have remained below $20 and are trading at a discount to company-operated casual dining peers, according to JPMorgan.

The Analyst

Analyst John Ivankoe upgraded Bloomin' Brands from Neutral to Overweight with a $23 price target.  

The Thesis

Now is the right time “to take risk to pursue returns in casual dining,” Ivankoe said in the Tuesday upgrade note.

The casual dining environment improved in December, and this could be the first time since 2014 that casual dining will post five consecutive months of positive all-store traffic growth, the analyst said. 

Bloomin' Brands has high operating and financial leverage, Ivankoe said. The company seems poised to leverage store margins and general and administrative expenses from 2019 onwards and is likely to reveal a multiyear plan to further reduce G&A, he said. 

The restaurant company's 2018 G&A was close to peak levels, Ivankoe said. Bloomin' indicated that an opportunity exists to achieve modest EBIT margin expansion due to a reduction in G&A and as reinvestment at the store level comes to an end, he said. 

The company’s core domestic Outback Steakhouse business is expected to exhibit continued strength, with a 2.5-percent increase in 2019 comps, Ivankoe said. Bloomin' Brands could achieve consolidated store margins of 15 percent vs. an estimated 14.7 percent in 2018, he said. 

“We to believe value exists in Cheesecake Factory, especially on a lower growth strategy, whether driven internally or with external pressure." 

Price Action

Bloomin' Brands shares were trading up 3.98 percent at $20.10 at the time of publication Tuesday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For January 8, 2019

Bloomin Brands Performance Will Be Supported By Outback, Morgan Stanley Says

Public domain photo via Wikimedia.