Cracker Barrel Is Undervalued, Maxim Says In Upgrade

Cracker Barrel Old Country Store, Inc. CBRL could be positioned for earnings growth, according to Maxim Group. 

The Analyst 

Maxim analyst Stephen Anderson upgraded Cracker Barrel from Hold to Buy and lifted the price target from $170 to $187.

The Thesis

Cracker Barrel’s same-restaurant sales are projected to rise by 2-2.5 percent in the coming quarters, with catalysts coming in the form of increased off-premise sales and new food and beverage menu platforms, including a new bone-in fried chicken menu that management said is testing well, Anderson said in the upgrade note. (See the analyst's track record here.) 

A 1-percent of comp gain for Cracker Barrel equates to an 11-cent EPS gain, the analyst said.  

Cracker Barrel has been placing an increased focus on creating a "grab-and-go" food selection that Anderson said will divert dollars from convenience stores; the analyst said the initiative is the chain's greatest opportunity to create consistently positive retail comp growth. 

Andersen said he anticipates another year of investment in fiscal 2019 from Cracker Barrel, but expects it to be limited to food costs.

“Even with these investments and a return to a 52-week fiscal year, we estimate CBRL will realize 6-percent EPS growth in fiscal 2019 thanks to more benign commodity costs, particularly for beef, poultry, pork and coffee, which comprise about 40 percent of total food costs." 

With shares down over 5 percent year-to-date and sitting near 52-week lows, Anderson said Cracker Barrel's valuation has yet to reflect a return to low-teen EPS growth.

A surprise earnings beat that shows acceleration in same-restaurant sales and/or above-consensus 2019 guidance could trigger a short-covering rally in Cracker Barrel shares, the analyst said. 

Price Action

Cracker Barrel shares were trading up 0.44 percent at $146.60 at the time of publication Friday. 

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Photo courtesy of Cracker Barrel.