Cheesecake Factory's Q4 Print, 2019 Guidance Fails To Turn 2 Analysts Bullish

Restaurant chain Cheesecake Factory Inc CAKE reported Wednesday with a fourth-quarter top- and bottom-line miss.

Same-store sales rose by 1.9 percent, better than the consensus estimate of 1.1 percent.

Despite the stock's strong reaction to the print, two Street analysts are unconvinced. 

The Analysts

Wells Fargo's Jon Tower maintained a Market Perform rating on Cheesecake Factory's stock with an unchanged $50 price target.

Bank of America Merrill Lynch's Gregory Francfort maintained at Neutral with a price target lowered from $56 to $50.

Wells Fargo: Solid Q4, Confusing Guidance

Cheesecake Factory reported EPS of 60 cents in the fourth quarter, 1 cent short of Wells Fargo's expectations, Tower said in a Wednesday note.

The headline number includes a 4-cent loss related to investments in unconsolidated affiliates that wasn't modeled by Street analysts. The company's same-store sales gap relative to the industry improved sequentially by 20 basis points, but is still negative due to heightened competition, the analyst said. 

Looking forward to 2019, management's EPS guidance includes an 8-cent-per-share accounting headwind and excludes future losses from unconsolidated investments, Tower said. The confusing outlook for 2019 may overshadow the math behind the numbers, which calls for the first year of EPS growth since 2016, he said. 

If the company performs as expected and the acquisition of the North Italia business is successful, the stock could move toward Wells Fargo's $50 price target, which is based on 10.2 times 2019 estimated EBITDA and a 7.5-percent free cash flow yield, the analyst said. 

Related Link: Raymond James Is Hungry For Cheesecake Factory And Chili's

BofA: 'Mixed Bag' Guidance

Cheesecake Factory's "mixed bag" report is notable for EPS coming in at the bottom end of management's guidance range of 60-64 cents per share, while G&A and labor costs were higher than expected, Francfort said in a Wednesday note.

On the other hand, comps were better than expected on a combination of pricing and mix, but traffic was down. The company realized lower pre-opening and other operating costs in the quarter.

The restaurant chain's 2019 guidance is similarly a "mixed bag," as expectations for adjusted EPS of $2.54 to $2.70 per share includes a 6-cent-per-share benefit from a lower tax rate and doesn't include an 8-cent-per-share loss from investments in North Italia and Flower Child.

Price Action

Cheesecake Factory shares were up 5.31 percent at $48.84 at the time of publication Thursday. 

Related Link: Barclays Loses Its Appetite For Cheesecake Factory

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