Bloomin' Brands Has 40% Upside Potential, BMO Says

Outback Steakhouse's parent company Bloomin' Brands Inc BLMN faces a few months of challenges ahead but could be a winner in the restaurant category in a post-COVID reality, according to BMO Capital Markets.

The Analyst: Andrew Strelzik upgraded Bloomin' Brands stock from Market Perform to Outperform with a price target lifted from $17 to $22.

The Thesis: Expectations for an eventual return to some form of normalcy due to encouraging vaccine updates bodes well for restaurant stocks like Bloomin', Strelzik said in the note. The analyst's bullish stance on Bloomin's stock is based on the following assumptions for its brands:

• Domestic dine-in average unit volume (AUVs) come in 5% below fiscal 2019 levels but dine-in restaurant margins rise 50 basis points versus pre-pandemic levels. But margins have incremental upside potential from market share gains as independent restaurants continue to close their doors.
• U.S. off-premise mix rises from 11% pre-pandemic levels to 19%. This assumption is based on Outback and Carrabba's 40% growth in off-premise sales while Bonefish and Fleming's off-premise mix trails in the mid-single digits.
• International AUVs rise 5% versus 2019 levels amid a strong demand recovery in Brazil.
• The company's new ghost kitchen chain Tender Shack achieves sales of $35 million and could add an extra $20 million in EBITDA based on "modest assumptions."

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These catalysts could help Bloomin' achieve a $450 million EBITDA (excluding Tender Shack) or EPS of $2.20 in 2022.

While these figures represent a Street-high estimate, the firm notes its assumptions are not "overly aggressive" as it implies all-in AUVs rise 4.5% from 2019, restaurant margins are only 10 basis points above 2019, and operating margins of 6.4% are shy of management's own 7% target.

BLMN Price Action: Shares of Bloomin' Brands were trading higher by more than 6% at $16.94