McCormick & Schmick’s Seafood Restaurants, Inc. (NASDAQ: MSSR) is currently the most recent of the upscale dining chains that has an offer to go private.  The offer comes from Landry’s via Fertitta for $9.25 per share and the stock is trading higher than the proposed offer.  The 52-week trading range is $6.14 to $11.98, so the thought is that shareholders will demand a higher price.  At $9.45, this company’s market cap is only $140 million against 2010 sales of $351 million.  As a reminder, this was a $20.00 to $25.00 stock back in 2006 to 2007.

It was less than a month ago that Morton’s Restaurant Group, Inc. (NYSE: MRT) announced a strategic alternatives exploration which could involve a sale.  By the way, ‘strategic alternatives’ almost always translates to “looking for a buyer.”  This stock is at $7.50 today and it traded from $6.44 up to $7.20 when it made this announcement.  The upscale steakhouse has a current value of $120 million against $296 million in 2010 sales.

But what about other chain restaurants?  Our view is that any of these chains could be ‘go-private’ candidates at any point.  Many management teams have grown very tired of living by a monthly or quarterly benchmark of same-store sales growth.  We have identified several others we think can easily be taken private in the months or years ahead.  The only caveat is a simple one: these management teams and corporate insiders will have to want to go private.  Here are a few other dining chains to possibly consider.

Ruth’s Hospitality Group Inc. (NASDAQ: RUTH)… Great steaks, hot steak ovens, upscale, and worth one-quarter of its 2005 to 2006 post-IPO peak.  It has a loyal customer base (even if the Houston Ruth’s needs a major face lift) because of great steaks and its $170 million valuation offers much room for a buyer to milk more money out of the model whether a buyer would want to grow the chain count or not.  Sales in 2010 were $357.6 million.  At $5.20, its 52-week range is $3.15 to $6.60.

The Cheesecake Factory Incorporated (NASDAQ: CAKE)… Great continental food under flagship brand and under Grand Lux.  Valuation is always a concern here at $1.75 billion in market cap against $1.66 billion in 2010 sales.  The price tag may drive away buyers, but the way to milk more money out of this one boils down to a buyer simply cutting the portion sizes by a fraction.  At a share price of $29.69, its 52-week range is $21.56 to $34.00.

P.F. Chang’s China Bistro. Inc. (NASDAQ: PFCB)… Great upscale Chinese or Asian-fusion at flagship brand and more casual and takeout venue of Pei Wei, with the latter having more growth opportunities.  The market cap is $1.08 billion and 2010 sales were $1.24 billion.  With shares at $46.20, its 52-week range is $37.36 to $53.39.  This one now targets roughly 40% of its income to be paid out in dividends.

California Pizza Kitchen Inc. (NASDAQ: CPKI)… Upscale pizza?  This one was supposedly going private before, yet here is still public.  It has a market value of about $400 million and 2010 sales were $642 million.  At $16.35, its 52-week trading range is $12.95 to $22.92.

You have noticed that no buyout targets have been offered up.  For any of these to be taken private it will require that management wants to go private.  Having a cheap stock might not matter in the slightest.  All of these offer at least some of what private equity seeks… Premium products in premium locations, creating at least a partial barrier to entry, with cash flows.  All of these models can be leveraged some and can probably be milked for more cash flow if they were private. A private equity buyer often may treat any restaurant chain more like a cash flow monster than it does a giant growth engine.  After all, there are only so many locations that a single concept can support.

High-end pizza, high-end Chinese, high-end continental, high-end anything… even relatively upscale can work.  If these kick off major cash flows for a private equity investor, all that matters is that they kick off enough consistent cash flow that they can be leveraged up and/or sold off at a higher price to a different buyer down the road while they are busy kicking off cash today.

Just because we believe these can be targets down the road does not mean they will all become targets.  At the end of the day, value is in the eye of the beholder.

JON C. OGG

AFLAC Inc. (NYSE: AFL) Raised to Outperform at FBR.
Apollo Group Inc. (NASDAQ: APOL) Reiterated Buy and raised estimates at Argus.
AT&T, Inc. (NYSE: T) Started as Overweight at JPMorgan.
Bank of America Corporation (NYSE: BAC) Removed from Top Pick Live List at Citigroup.
The Cheesecake Factory Incorporated (NASDAQ: CAKE) Raised to Buy at BofA/ML.
EMC Corp. (NYSE: EMC) Reiterated Neutral with $25 target at BofA/ML.
E*TRADE Financial Corporation (NASDAQ: ETFC) Cut to Neutral at Goldman Sachs.
General Dynamics Corp. (NYSE: GD) Raised to Buy at Citigroup.
General Motors Corporation (NYSE: GM) Started as Buy at Argus.
Human Genome Sciences Inc. (NASDAQ: HGSI) Reiterated Underperform with $24 target at BofA/ML.
ITT Corporation (NYSE: ITT) Reiterated Underperform but raised target to $66 from $58 at BofA/ML.
Juniper Networks, Inc. (NASDAQ: JNPR) Raised to Buy at ThinkEquity.
MetroPCS Communications Inc. (NYSE: PCS) Reiterated Buy and $16 target at Argus.
Micron Technology Inc. (NASDAQ: MU) Raised to Outperform at Baird; Raised to Buy at Stern Agee.
Microsoft Corporation (NASDAQ: MSFT) Reiterated Outperform and $36 target at Credit Suisse.
Nasdaq OMX Group (NASDAQ: NDAQ) Kept at Buy but Removed from Conviction Buy List at Goldman Sachs.
Sprint Nextel Corp. (NYSE: S) Started as Overweight at JPMorgan.
WellPoint. Inc. (NYSE: WLP) Reiterated Outperform and $74 target at Credit Suisse.

You can join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Consumers who might remain unconvinced about an economic recovery still have to eat. And not all of them are eating at fast food restaurants.

Chipotle Mexican Grill, Inc. (NYSE:CMG) reported a third-quarter sales increase of 23%, year-over-year, and a diluted EPS gain of nearly 41%, completely blowing by analysts’ estimates. Diluted EPS came in at $1.52, far better than estimates of $1.30, and revenue of $476.9 million eclipsed estimates of $461.2 million. Competitors The Cheesecake Factory Inc. (NASDAQ:CAKE) and BJ’s Restaurants, Inc. (NASDAQ:BJRI) also topped expectations handily. Two other chains in the sector, Panera Bread Co. (NASDAQ:PNRA) and Buffalo Wild Wings Inc. (NASDAQ:BWLD) report earnings next week.

The fast casual dining sector, where these companies compete, has grown steadily for the past 12 months. Chipotle has posted new 52-week highs almost weekly for the past two months. BJ’s and Panera have also posted new highs recently. Fast food giant McDonald’s Corp. (NYSE:MCD) is also climbing to new highs consistently over the past two or three months. Only Cheesecake Factory and Buffalo Wild Wings have failed to post new highs in the past six months.

Fast casual dining combines fast service with higher quality food that customers are willing to pay more for. Chipotle has plans to open up to 130 new stores in 2010, and another 135-145 in 2011. For the rest of this year the company expects comparable store sales growth in the high single digits, although next year’s figure is forecast in the low single digits.

That drop in comparable sales could be a signal that the company is growing too fast. It wouldn’t be the first restaurant chain to suffer that fate. The most famous flame-out is probably Boston Market, which took the market by storm in the mid 1990s only to file for bankruptcy in 1998. Fast growth can be more a curse than a blessing on occasion.

The company now owns 1,023 restaurants. Chipotle has opened 67 stores so far in 2010 and in the third quarter comparable store sales were up 11.4%, the biggest increase in five quarters. In its earnings release, Chipotle noted that the increase in comparable store sales was driven by increased traffic.

Continuing that rate of growth, and managing it, will be a challenge for Chipotle going forward, but today the company can bask in its glory. The shares are up about 15% on about 4X normal volume. And yes, Chipotle did set a new 52-week high today.

Paul Ausick

Buffalo Wild Wings Inc. (NASDAQ: BWLD) is the biggest problem child of the casual dining chain stocks today.  The company tanked last night when it said that its Q1 profit rose 24% to $0.58 EPS on revenue of $152.3 million; Thomson Reuters had estimates of $0.57 EPS and revenue of $154.4 million. The problem is same-store sales that puts its forecast of 20% earnings growth at risk.  The quarter’s same-store sales rose only 0.1% and only 0.7% at franchised restaurants.  The problem is that both classes saw drops of roughly 3.7% at company-owned stores and fell 2.4% at franchise stores so far in April.  If you look at the prior growth of 20%, the implied earnings comes to about $2.04 EPS for the fiscal-year.  Thomson Reuters is looking for $2.06 EPS.  Its shares are down 18.4% at $41.61.

Panera Bread Co. (NASDAQ: PNRA) is the other problem child, just to a lesser extent.
Earnings were $0.82 EPS, matching estimates. Revenues gained by 14% to $364.2 million and same-store sales rose 10% for company sites and 9.2% at franchise stores.  While Panera reiterated guidance, the slowing of growth was too much for a growth stock to handle.  The company sees next quarter of $0.81 to $0.83 EPS on 8.5% to 9.5% in same-store sales; and it reiterated a 2010 expected range of $3.40 to $3.44 EPS with a 6.5% to 7.5% gain in same-store sales.  The quarterly estimate from Thomson Reuters is $0.84 EPS next quarter and the annual estimate is $3.52 EPS.  Panera shares are down 6% at $81.00.

Texas Roadhouse Inc. (NASDAQ: TXRH) and Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) are different in that they are ‘bar-b-q’ and burger chains, but both are growth chains and are marketing to the same customers.  Texas Roadhouse is down 7.8% at $14.32 and Red Robin is down 6% at $24.13.

The Cheesecake Factory Incorporated (NASDAQ: CAKE) and PF Chang’s China Bistro Inc. (NASDAQ: PFCB) may be a tad higher up the casual dining food chain with slightly higher average ticket items, but they are getting hit today as well.  Cheesecake is down 6% at $27.77 and PF Chang’s is down 5.8% at $43.73.

Two other casual dining behemoths are down with the sector, although as they are mature they are down less than the higher-beta growth chains: Darden Restaurants, Inc. (NYSE: DRI) and Brinker International Inc. (NYSE: EAT).

Darden Restaurants Inc. (NYSE: DRI)  has Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, and Seasons 52.  Because it has more than 1,700 locations, its stock is down “only” 2.1% at $46.01.  Brinker International Inc. (NYSE: EAT) is down worse than Darden, but is off “only” 3.8% at $18.88.  It has almost 1,700 chains among its Chili’s Grill & Bar, On The Border Mexican Grill & Cantina, and Maggiano’s Little Italy chains.

Chipotle Mexican Grill, Inc. (NYSE: CMG) is down as collateral damage and is meant for reference only.  It is after a lower per-person ticket and is the old McMex play.  This stock also rose almost $20.00 after earnings and guidance were better than expected just last week.  Its stock is down 2.3% mid-day at $135.83.

There are many issues that explain this.  Some will say that it is a more competitive environment.  Some already have.  But at the end of the day, this is a huge disappointment when you consider that we are supposed to be in the midst of a recovery and when people are finally getting hired back to actual paying jobs.  This is a notion that Americans are still hanging on to value and thriftiness, and for longer than what many analysts and economists (and company executives) have been thinking.

JON C. OGG

Imagine if (or when) you are forced to see the calorie, salt, and fat counts for many of your favorite foods such as Buffalo Wings at Buffalo Wild Wings Inc. (NASDAQ: BWLD). Or what about some of those oversized plates big enough for two or three meals at The Cheesecake Factory (NASDAQ: CAKE)?  And what if you tally up the full calories and sodium in Chinese food at PF Chang’s China Bistro Inc. (NASDAQ: PFCB)?  Or a Monster Burger at Red Robin Gourmet Burgers Inc. (NASDAQ: RRGB).  Or what about Brinker International Inc. (NYSE: EAT) chains like Chili’s for the Texas Cheese Fries?

We do not mean to pick on any single chain by naming menu items or chains, because this  could affect all big chain owners to the likes of Burger King Holdings Inc. (NYSE: BKC), Wendy’s/Arby’s Group, Inc. (NYSE:WEN), Texas Roadhouse Inc. (NASDAQ: TXRH), Sonic Corp. (NASDAQ: SONC), California Pizza Kitchen Inc., (NASDAQ: CPKI), and many more.  The news of this had a significant negative impact on most of these stocks today when you consider we had an up market.

The restaurants would also be required to immediately furnish upon request additional nutritional data such as total calories, calories from fat, amounts of fat, saturated fat, cholesterol, sodium, total carbohydrates, complex carbohydrates, sugars, dietary fiber and protein.   A trick will be in making sure that the “serving size” matches up with the plate size actually served to you.

The “compromise” is said by the senators to combine key elements of the Menu Education and Labeling (MEAL) Act, sponsored by Senator Tom Harkin (D-IA) and the Labeling Education and Nutrition (LEAN) Act, sponsored by Senators Tom Carper (D-DE) and Lisa Murkowski (R-AK).  The agreement also requires the disclosure of calories per food items on vending machines owned by individuals operating 20 or more vending machines.

Frankly, all of this information should be more available in restaurants if patrons request it.  Many chains disclose this along with food allergen alerts, but the obligation is on the patron.  Putting this directly on a menu or on a menu board may either encourage restaurants to work around the rules or may create other angles.  For restaurants to get around this, they can merely say “per serving” and just say how many servings are there.

Many of the fast food chains already make this data available on their websites and some have these pamphlets available upon request in their stores:

• McDonald’s gives its full nutritional list.
• Yum! Brands for Pizza Hut shows calories and other nutritional data even for pizza.
• P.F. Chang’s shows its nutritional data online for its entire menu.  Hint: not all plates are just one full serving; some orders are four servings or more.
• Red Robin Gourmet Burgers allows you to customize your order to calculate nutritional values.
• Brinker’s chain Chili’s shows its nutritional information as well on its Menu site if you download the PDF.  Hint: The Texas Cheese Fries are 1,920 calories with 3,570 mg of sodium.
• Sonic also lists its nutritional count for its full menu.

Again, our intent here is to just show how some restaurant chains already make this available.  It is out there.  Some restaurants are easy to find the data and others are not.   The long and short of the matter of this is that it could help out some in the war on obesity and other preventative health measures.  Whether it helps out entirely, let’s just say old habits are hard to break.  And if iceberg salad with lemon juice was appealing to the masses, then they wouldn’t need to make pants above a 34-inch waist.

Here was how bad this was on some chain stock tickers: CPKI -6.88%, PFCB -6.3%, EAT -6.1%, BWLD -5.9%, CAKE -4.6%, SONC -4.3%, TXRH -4.2%, RRGB -3.9%, YUM -1.6%, and MCD -1.2%.

Jon C. Ogg

• AuthenTec (AUTH) Started At Buy at Stanford Group.
• CBRL Group (CBRL) Raised to Outperform at Raymond James.
• Cheesecake Factory (CAKE) Raised to Outperform at Raymond James.
• Darden Restaurants (DRI) Raised to Outperform at Raymond James.
• Kroger (KR) Raised to Buy at Jefferies.
• Lions Gate (LGF) Raised to Buy at Jefferies.
• Panera Bread (PNRA) Raised to Outperform at Raymond James.
• PharMerica (PMC) Started as Outperform at Oppenheimer.
• Volterra Semiconductor (VLTR) Raised to Buy at Piper Jaffray.

Jon C. Ogg
October 21, 2008

Jon C. Ogg
February 11, 2008

• Accenture (ACN) stock up 4% after posting $0.60 EPS vs. estimate of $0.56.
• Activision (ATVI) again guided earnings higher.
• Altus Pharmaceuticals (ALTU) traded down almost 20% after it reacquired ALTU-238 development and commercialization rights for North America from Genentech, an end to the development pact.
• Array BioPharma (ARRY) traded down almost 20% after it announced initial results from a Phase II study comparing its monotherapy with temozolomide in the first-line treatment of advanced melanoma showed no apparent difference in efficacy for the primary endpoint.
• Athersys (ATHX) and Angiotech announce authorization of Phase I stem cell trial for heart attacks.
• Bear Stearns (BSC) expected to post first loss.
• Blackstone (BX) plans to sell a $9 Billion CMBS offer backed by Hilton Hotels in Q1 2008.
• Cheesecake Factory (CAKE) had a 10% stake taken by activist Nelson Peltz.
• Electronic Clearing house (ECHO) getting acquired by intuit for $17.00 per share.
• FedEx (FDX) $1.54 EPS vs. $1.50 estimates (had been lowered) but next quarter $1.15-1.30 vs. $1.38 est.; $6.40 to $6.70 for year bvs. $6.47 estimate.
• Herman Miller (MLHR) $0.72EPS Vs. estimate of $0.59; stock rose about 10%.
• Indevus Pharma (IDEV) trading down about 5% on a non-approvable letter from the FDA for VALSTAR NDA supplement (submitted May 2007).
• Intuit (INTU) paying $131 Million for ECHO.
• LDK Solar (LDK) $0.37 EPS on $157M revenues vs. $0.37/$143.22M est.; Q4 guidance $0.40-$0.41 on $180-$185M revenues vs. $0.41/$167.5M est.; stock indicated down 5%.
• Leggett & Platt (LEG) stock down about 5% on lower guidance.
• Local.com (LOCM) announced a strategic partnership with IAC/Interactive’s Citysearch; stock trading up 7% on news.
• Nike (NKE) traded up 3% after $0.71 EPS on $4.3 Billion revenues vs. estimates $0.66/$4.3B.
• Oracle (ORCL) traded up 6% after beating earnings and giving slightly higher guidance; sees enterprise spending lasting into 2008.
• Pier 1 (PIR) -$0.11 EPS vs -$0.24 estimate.
• Research-in-Motion (RIMM) reports earnings after the close today.
• Rite Aid (RAD) indicated down about 5% after posting loss.
• Ruths Chris (RUTH) gave an earnings warning.
• Smart Modular Tech (SMOD) $0.18 EPS vs. $0.17 estimate.
• Steelcase (SCS) $0.30 EPS vs. $0.28 estimate.
• Superior Offshore (DEEP) signed a letter of intent with a strategic partner for ownership of a DP-III deepwater construction and dive support vessel expected to be delivered in late 2008.
• Tribune (TRB) buyout supposedly set to close today.

Jon C. Ogg
December 20, 2007

• Red Robin Gourmet (RRGB)         3.304M  -1.13%
• Papa John’s (PZZA)                         2.245M   -2.91%
• McCormick & Schmick’s (MSSR)  1.497M   -6.22%
• Buffalo Wild Wings (BWLD)           3.293M    -6.4%
• Starbucks (SBUX)                          25.725M   -6.98%
• Cheesecake factory (CAKE)         11.636M   -7.55%
• Texas Roadhouse (TXRH)                7.066M    -7.93%
• CBRL Group (CBRL)                       4.727M  -14.92%
• P.F.Chang’s (PFCB)                         7.051M  +2.54%
• Panera Bread (PNRA)                      4.688M  +7.91%

Here are some key related articles that may give added insight:

• NYSE & AMEX Short Interest Decline
• Starbucks’ Founder Defends Company
• How Out of Favor Is P.F. Chang’s With Diners & Investors?  
• Cheesecake’s possible self-fix

Jon C. Ogg
September 26, 2007

Jon C. Ogg
September 25, 2007