Raymond James Turns Bullish On Cheesecake Factory

A recent pullback in the share price of Cheesecake Factory Inc CAKE before second-quarter earnings has Raymond James analysts bullish.

The Cheesecake Factory Analyst: Brian Vaccaro upgraded the firm's ratings of Cheesecake Factory from Market Perform to Outperform, setting a price target of $60.

The Cheesecake Factory Takeaways: The recent pullback on Cheesecake Factory's stock presents "an attractive entry point ahead of the company's 2Q release," said Vaccaro.

Above-average exposure to California and Northeast U.S. markets will likely drive strengthened second-quarter sales due to relaxed dine-in restrictions and the end of the school year, resulting in "significant upside to consensus [second quarter] expectations," he said.

Further evidence of a second-quarter expectations beat is "suggested by the company's higher than expected cash balance late in the period," said Vaccaro.

Cheesecake Factory recently cleaned up its capital structure through a refinancing transaction that has offset the dilutive preferred share issuance in the early stages of the COVID-19 pandemic, according to the Monday note. This refinancing is accretive to EPS by $0.25, resulting in an update to both FY21 and FY22 EPS estimates, said the analyst.

The $60 price target results from an 18x multiple on FY22 P/E estimates of $3.33 and is in line with Cheesecake Factory's historical multiples between 16x and 20x, said Vaccaro.

CAKE Price Action: Cheesecake Factory was up 3.41% to $53.42 Monday at publication.

Photo: Greenville Daily Photo by Mike Nice (public domain) via Flickr