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Bear of the Day: Cheesecake Factory (CAKE)

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About two months ago, I featured Cheesecake Factory (CAKE - Free Report) as a ‘bear of the day’. Since then, the stock has been under additional pressure, losing a double-digit percentage of its share price, and continuing its weak trend.

However, the company did manage to beat out earnings estimates for the most recent quarter, while its PE is just over 15. This could suggest to some investors that the bottom is finally in for this restaurant stock, but is that really the case?

Recent Report & Outlook

Though CAKE did beat out estimates for the most recent report—edging out expectations by just 2.6%-- its sales estimates were just in-line (and really it was a razor-thin miss). Higher costs are really hampering the outlook for the company, while sluggish comps aren’t helping matters either.

If that wasn’t enough, CAKE also lowered its full year outlook , blaming the challenging restaurant environment. Comps are now expected to decline 1%-- which is compared to previous expectations of minimal growth—while EPS estimates took a modest hit too.

 

 

Estimates

This reduced expectation from Cheesecake Factory management forced analysts to slash their estimates for the stock yet again. The full year estimate is now just $2.66/share for earnings (down from $2.83/share two months ago), while the following year consensus estimate has declined as well.

We actually haven’t seen any estimates go higher for CAKE stock in the past two months for either the current year or the next year time frame. And the next year earnings picture suggests that the following year earnings will be just a penny higher than 2016’s earnings, meaning basically no growth at all on the earnings front in a two-year time frame.

With these kinds of numbers, it shouldn’t be a surprise to note that CAKE has an ‘F’ grade for momentum, while it has a Zacks Rank #5 (Strong Sell) too. So, more weakness seems likely (yet again) for CAKE shares in the near-term.

Other Choices

Unfortunately for investors focused on the restaurant sector, the space has a very poor rank right now. In fact, the current industry rank is in the bottom 20% overall and there are dozens of stocks with a ‘sell’ rank.

However, there are a few gems in ‘buy’ territory right now, including Restaurant Brands International ((QSR - Free Report) ). This parent company of Burger King currently has a Zacks Rank #2 (buy), strong EPS growth projections, and rising earnings estimates too. Thanks to these factors, QSR could be a better choice for restaurant investors right now, and especially when compared to the still-struggling Cheesecake Factory.

 

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