On Wednesday, Baird analyst David Tarantino increased the price target on Cheesecake Factory (NASDAQ:CAKE) to $47.00, up from the previous $40.00, while maintaining a Neutral rating on the stock. The adjustment follows Cheesecake Factory's third-quarter earnings report, which Tarantino found promising due to better-than-expected comparable sales and margin performance.
The company's positive margin outlook for the fourth quarter of 2024 and the entirety of 2025 has led Baird to revise its EPS estimates for the next two years.
The analyst highlighted Cheesecake Factory's strong performance in the third quarter, noting the company's earnings per share (EPS) exceeded estimates. This success was attributed to stronger-than-anticipated comparable store sales and an impressive margin performance. Based on these results, Baird has increased its EPS forecasts for Cheesecake Factory for the years 2024 and 2025.
Despite the optimistic financial performance, Baird has chosen to maintain a Neutral rating on Cheesecake Factory's shares at this time. The firm cites ongoing uncertainties in the external operating environment for casual dining chains as a reason for its cautious stance.
The analyst expressed a desire to remain patient with the rating, considering the potential risks associated with the casual dining sector, which could affect Cheesecake Factory, especially given the high degree of operating leverage in the company's earnings model.
Tarantino's comments reflect a careful approach, acknowledging the company's solid quarter while also considering the broader challenges that may lie ahead. "While encouraged, we are inclined to stay patient with our rating at this stage given lingering uncertainties about the external operating backdrop for casual dining chains, which poses a risk for CAKE when factoring in the relatively high degree of operating leverage associated with the company's earnings model," said Tarantino.
In other recent news, The Cheesecake Factory has reported robust third-quarter earnings, with an adjusted earnings per share of $0.58, surpassing analysts' expectations. The company's revenue stood at $865.47 million, marking a year-on-year increase of 4.2%, despite falling slightly short of the projected $866.13 million. Additionally, the restaurant chain noted a 1.6% rise in comparable restaurant sales, marking the fourth consecutive quarter of year-on-year growth.
Deutsche Bank, Stephens, and Citi have all adjusted their price targets for The Cheesecake Factory, with Deutsche Bank raising it to $48, Stephens to $51, and Citi to $55. Deutsche Bank maintained a Hold rating, while Stephens and Citi sustained an Overweight and Buy rating respectively, reflecting the company's potential for continued growth.
The Cheesecake Factory has also continued its expansion, opening seven new restaurants during and after the third quarter. Furthermore, the company repurchased approximately 29,450 shares at a cost of $1.1 million in Q3 and declared a quarterly dividend of $0.27 per share.
InvestingPro Insights
Recent data from InvestingPro offers additional context to Baird's analysis of Cheesecake Factory (NASDAQ:CAKE). The company's P/E ratio (adjusted) stands at 14.57, which aligns with an InvestingPro Tip suggesting that CAKE is trading at a low P/E ratio relative to its near-term earnings growth. This metric supports the positive outlook on the company's financial performance highlighted in the article.
Furthermore, Cheesecake Factory's revenue for the last twelve months as of Q2 2024 was $3,502.48 million, with a revenue growth of 2.74% over the same period. This growth, albeit modest, underscores the company's ability to increase sales in a challenging casual dining environment, as mentioned in the article.
An InvestingPro Tip also notes that the stock price has seen a large uptick over the last six months, which is corroborated by the impressive 25.97% price total return over the same period. This price movement reflects the market's positive reception of Cheesecake Factory's recent performance, including the better-than-expected Q3 results discussed in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Cheesecake Factory, providing a deeper understanding of the company's financial health and market position.
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