BofA cuts Bloomin' Brands stock rating, target to $13 from $18

On Monday, BofA Securities issued a downgrade for Bloomin' Brands (NASDAQ:BLMN) stock, moving its rating from Neutral to Underperform. The firm also adjusted the price target downward to $13.00, a significant decrease from the previous $18.00. Currently trading at $12.33, the stock has fallen over 50% in the past year, according to InvestingPro data. The revision reflects concerns over the company's long-term transaction growth and market share competition within the casual dining sector.

Sara Senatore, an analyst at BofA Securities, highlighted that Bloomin' Brands has experienced an average annual transaction decline of approximately 2% over the past decade. This trend includes a compounded annual growth rate (CAGR) of -1.1% in traffic at Outback, the company's largest brand. Outback in the United States accounted for around 51% of Bloomin' Brands' revenue in Fiscal Year 2024, a figure that is projected to rise to approximately 53% following the brand's licensing in Brazil. InvestingPro data reveals the company's significant debt burden, with a debt-to-equity ratio of nearly 10x, though it maintains an attractive 7.8% dividend yield.

The casual dining industry is known for its modest growth rates, but according to the analyst, Bloomin' Brands has struggled more than its competitors. These struggles have allowed other chains to increase their market share leads over Bloomin' Brands.

BofA Securities' assessment also took into account the strategic focus of Bloomin' Brands' new management. The management team is concentrating its efforts on reversing the downward trend in customer traffic. However, the analyst's commentary suggests that the firm remains cautious about the company's ability to improve its performance in the near term.

The downgrade and the lowered price target indicate a more conservative outlook on Bloomin' Brands' potential to navigate the competitive landscape and achieve transaction growth. This move by BofA Securities could influence investor sentiment as the market processes the implications of the firm's revised expectations for Bloomin' Brands.

In other recent news, Bloomin' Brands reported a decrease in its fiscal third-quarter 2024 revenue and earnings per share (EPS). The company's Q3 revenues fell by 4% year-over-year to $1 billion, with adjusted diluted EPS dropping from $0.41 in 2023 to $0.21. Goldman Sachs recently initiated coverage on Bloomin' Brands with a Sell rating due to growth concerns, while BMO Capital and Piper Sandler maintained their neutral ratings but reduced their price targets to $16.00.

The company is also in the early stages of implementing improvement strategies under the leadership of newly appointed CEO Michael Spanos. Bloomin' Brands has proposed selling a significant portion of its Brazil operations, a move that Goldman Sachs suggests could result in a downside to net income projections for fiscal year 2025.

Despite these challenges, Bloomin' Brands maintains a notable 7.43% dividend yield. Analysts from multiple firms have expressed the need for a clearer and more compelling strategy to bolster investor confidence and improve the performance of the Outback Steakhouse brand. These are among the recent developments for the company.

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