Behind the Money

Cheesecake Factory Hits New High on ‘Happy Hour’

In one of the stranger reasons for bullishness contained within often number-heavy and opaque analyst reports, Stephen Anderson, an MKM Partners analyst, cites the Cheesecake Factory's rollout of a “happy hour” in the next several weeks as reason to keep buying the stock.

“At first blush, it would appear ‘The Cheesecake Factory’ has capitulated and joined the ranks of casual dining chains that have succumbed to deep discounting,” wrote Sanderson in a note to clients today. “However, a more careful look at the promotion reveals the ‘Happy Hour’ promotion is limited to bar patrons and being run Monday through Friday between 4:00 p.m. and 6:00 p.m., a shoulder period when traffic typically is slow, and limiting the hours in which the promotion is available limits potential margin erosion.”

Cheesecake Factory hit a new 52-week high last week just as it started to rollout the new promotion in its Southern California locations. It will be party time for all locations by March 18. The share are making another run at that high today after Anderson’s note, where he places a $26 target on the stock.  

One investor believes the stock may be getting a bit tipsy. Karen Finerman, President of Metropolitan Capital Advisors and Fast Money trader, believes the stock is just too rich at this point in this careful consumer environment.

Cheesecake Factory has a price-earnings ratio of 28.5, higher than a similar high-end chain like P.F. Chang’s China Bistro with a 26 multiple, and astronomically higher than lower-end chains such as Taco Bell-proprietor Yum Brands, which Finerman owns.

So this “Happy Hour”, featuring $4 draft beers and $5 wines and cocktails according to Anderson, represents the party just getting going at Cheesecake, or the last call for a stock that’s tripled in the last 1 year.

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