This Restaurant Concept is Firing on All Cylinders

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During my high school tennis career, I remember visiting Cracker Barrel Old Country Store (NASDAQ: CBRL) restaurants throughout the Midwest with my teammates and coaches. If readers had asked me to consider the future of the Cracker Barrel brand in years past, through deductive reasoning I would have speculated the company may face significant hurdles in the form of increased competition by the likes of Panera Bread (NASDAQ: PNRA) and difficulty in maintaining a modern brand presence as the fast-casual restaurant trend continues to develop.

However, we find ourselves in late 2012 and the Cracker Barrel concept has not only survived, but its old-time brand image and family-oriented consumer appeal have grown and prospered. Cracker Barrel Old Country Store, Inc. operates more than 600 restaurants in 42 states, all of which are company owned. This is in direct contrast to the quick-service restaurant group of McDonald’s (NYSE: MCD), Burger King Worldwide, and Yum Brands (NYSE: YUM), which choose to franchise nearly their entire restaurant base.

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Shares of Cracker Barrel Old Country Store have handily outperformed the broader S&P 500 index, as evidenced by the above chart. The company reported results for first quarter fiscal 2013 on Nov. 29, beating consensus earnings estimates by 2 cents and stating comparable restaurant sales increased 3.3% while comparable retail sales increased 1.6% year-over-year.

Here are five reasons Cracker Barrel Old Country Store should continue to outperform:

  • The company stated during its first quarter conference call that the recent Thanksgiving holiday was the highest sales day in its history.
  • Management reiterated fiscal year 2013 EPS guidance of $4.50 – $4.70 per share and revenue guidance of $2.6 billion – $2.65 billion.
  • Activist investor Sardar Biglari owns a 17% stake in Cracker Barrel through Biglari Holdings (NYSE: BH). Although he has twice been denied a seat on the company’s board of directors, Biglari has served as an impetus for improvement, causing management to announce changes such as the introduction of new menu items and revisiting its marketing strategy. Burger King is now successfully using these tactics to lure customers from McDonald’s, a topic for a future article.
  • Bloomberg recently published an extensive write-up on Cracker Barrel, stating CBRL could be an attractive target for private equity suitors based on the company’s enormous cash flow generation. The article contends that takeover offers could be in the $80 range.
  • Northcoast Research estimates that the real estate owned by Cracker Barrel, including its stores, as well as its corporate headquarters and a motel, could be worth more than $1 billion, indicating the sum-of-the-parts valuation may be significantly higher than the current market price.
<table> <tbody> <tr> <td> </td> <td><strong>Cracker Barrel</strong></td> <td><strong>McDonald's <br /></strong></td> <td><strong>Panera Bread</strong></td> <td><strong>Yum! Brands</strong></td> <td><strong>Industry Average</strong></td> </tr> <tr> <td><strong>Price/Earnings</strong></td> <td>14.13x</td> <td>16.4x</td> <td>29.45x</td> <td>19.75x</td> <td>19.59x</td> </tr> <tr> <td><strong>Price/Sales</strong></td> <td>0.56x</td> <td>3.18x</td> <td>2.32x</td> <td>2.23x</td> <td>2.38x</td> </tr> <tr> <td><strong>PEG Ratio</strong></td> <td>1.37x</td> <td>1.84x</td> <td>1.57x</td> <td>1.42x</td> <td>1.65x</td> </tr> <tr> <td><strong>Beta</strong></td> <td>0.8</td> <td>0.4</td> <td>0.9</td> <td>0.9</td> <td>1.2</td> </tr> <tr> <td><strong>Dividend Yield</strong></td> <td>3.25%</td> <td>3.54%</td> <td>N/A</td> <td>2.00%</td> <td>2.54%</td> </tr> </tbody> </table>

Shares of Cracker Barrel Old Country Store are down from their all-time high of $69.30 reached earlier this year in October. In a previous commentary, I identified several stocks I felt were victims of tax selling, and I feel that Cracker Barrel is another possible example of this occurrence. With shares trading at a conservative 13 times forward earnings, now may be the perfect time to initiate a long-term position in this time-tested restaurant operator.

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johnmacris has no positions in the stocks mentioned above. johnmacris was employed by Northcoast Research Holdings, LLC during 2011. johnmacris worked as a contractor for Burger King Worldwide during 2011 and 2012. The Motley Fool owns shares of McDonald's and Panera Bread. Motley Fool newsletter services recommend Burger King Worldwide, Cracker Barrel Old Country Store, McDonald's, and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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