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Cheesecake Factory Hits Fresh 52-Week High: Time to Buy?

Zacks Equity Research

Shares of the California-based restaurant chain, The Cheesecake Factory Incorporated CAKE hit a 52-week high of $60.19 on Nov 23. However, the company closed the day’s trading a trifle lower at $59.82. Notably, year to date, the stock has returned nearly 30%.

Last month, the company posted better-than-expected third-quarter 2016 results with both earnings and revenues surpassing the Zacks Consensus Estimate by 14.8% and 0.8%, respectively.

The reported quarter marked the company’s seventh consecutive earnings beat, with an average positive surprise of 10.84% in the trailing four quarters. The quarter also marked the company’s 27th consecutive quarter of positive comps. In fact, on the back of solid bottom-line performance in the third quarter, the company raised its earnings guidance for full-year 2016.

Meanwhile, the stock’s prospects are further exemplified by the ongoing upward estimate revisions. Current quarter estimates have moved north by 1.5%, while current year estimates have moved by 3.7%, over the past month.

CHEESECAKE FACT Price and Consensus

CHEESECAKE FACT Price and Consensus | CHEESECAKE FACT Quote

Cheesecake Factory is one of the most recognized upscale casual restaurants operating in the U.S. Along with domestic market, the company is also foraying into lucrative markets of late, like the Middle East, North Africa, Central and Eastern Europe, Russia, Turkey, Mexico, Kuwait, Lebanon and Chile. This is being done to keep pace with the strategies followed by other restaurant industry giants like Yum! Brands, Inc. YUM, McDonalds Corporation MCD and Papa John’s International, Inc. PZZA.

The company is committed to boost its sales and improve margins to survive in the competitive environment. In order to boost comps, the company is focusing on improving its speed of service and training its servers so that they render higher level of service.

Also, the company’s technology-enabled initiatives are doing well with positive feedback on its mobile payment app, CakePay. The company is also witnessing incremental sales from the delivery service it has been piloting with a third-party partner in select locations and is planning to expand delivery to additional locations.

However, rising costs of labor and inputs, a soft consumer spending environment in the restaurant sector of the U.S. and underperformance of Grand Lux Cafe remain potent headwinds.

The Cheesecake Factory currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

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