Casual dining stocks had a big run from the ‘depression mentality’ lows of March 2009 through April of this year as investors realized that business was picking up again. I was a big buyer of CAKE near the lows but sold out earlier this year when the shares approached $30.
Today CAKE closed at $23.83 – off 22.5% from its recent $30.75 high. Year-over-year comparisons turned positive last September with $0.27 versus $0.19. December was $0.26 against $0.13 and March was a similarly good $0.31 v. $0.17.
Full year 2010 – 2011 consensus estimates are now running $1.35 and $1.58 respectively up from $0.97 in 2009. That puts CAKE’s P/E at about 17.7x this year’s and 15.1x 2011’s expectations.
Value Line notes that CAKE’s 10-year median multiple was 31x but even they don’t see that high a level for the future. They do use an 18.5 P/E in computing their 3 – 5 year target price range.
That P/E on full year projections would bring CAKE back to about $25 by year-end and to over $29 by the end of 2011. Standard and Poors sees ‘Fair Value’ right now as $26.30 /share.
Here’s a nice seven-month play that works out well even if Cheesecake goes nowhere or a tad lower from here until next January 22.
If CAKE shares merely remain above $22.50 on Jan. 22, 2011:
· The calls will be exercised and the puts will expire.
· You will sell your shares for $22,500.
· You will have no further option obligations.
· You’ll end up with no shares and $22,500 in cash.
$22,500 - $17,580 = $4,920 profit
$4,920/$17,580 = 27.9% cash-on-cash achieved in just 7 months on shares that:
· Went up.
· Stayed unchanged.
· Dropped by up to 5.5% to as low as $22.50/share.
Should CAKE close below $22.50 on Jan. 22, 2011:
· The calls will expire and the puts will be exercised.
· You will be forced to buy another 1000 CAKE.
· You’ll need to lay out an additional $22,500 in cash.
· Your final position will be 2000 CAKE shares.
Cost for those 2000 shares: $17,580 + $22,500 = $40,080 or $20.04 /share.
$20.04 is lower than the absolute lows for the entire 5+ year period from March of 2003 right through May of 2008. Trailing 12-month EPS {through March, 2010} are higher than they were at any time during that whole time period.
Dr. Paul Price – June 22, 2010
www.BeatingBuffett.com
Disclosure: Author is long CAKE shares and short CAKE options.
Today CAKE closed at $23.83 – off 22.5% from its recent $30.75 high. Year-over-year comparisons turned positive last September with $0.27 versus $0.19. December was $0.26 against $0.13 and March was a similarly good $0.31 v. $0.17.
Full year 2010 – 2011 consensus estimates are now running $1.35 and $1.58 respectively up from $0.97 in 2009. That puts CAKE’s P/E at about 17.7x this year’s and 15.1x 2011’s expectations.
Value Line notes that CAKE’s 10-year median multiple was 31x but even they don’t see that high a level for the future. They do use an 18.5 P/E in computing their 3 – 5 year target price range.
That P/E on full year projections would bring CAKE back to about $25 by year-end and to over $29 by the end of 2011. Standard and Poors sees ‘Fair Value’ right now as $26.30 /share.
Here’s a nice seven-month play that works out well even if Cheesecake goes nowhere or a tad lower from here until next January 22.
Cash Outlay | Cash Inflow | |
Buy 1000 Cake @ $23.83 /share | $23,830 | |
Sell 10 Cake Jan. $22.50 calls @ $3.60 /sh. | $3,600 | |
Sell 10 Cake Jan. $22.50 puts @ $2.20 /sh. | $2,200 | |
Net Cash Out-of-Pocket | $17,580 |
If CAKE shares merely remain above $22.50 on Jan. 22, 2011:
· The calls will be exercised and the puts will expire.
· You will sell your shares for $22,500.
· You will have no further option obligations.
· You’ll end up with no shares and $22,500 in cash.
$22,500 - $17,580 = $4,920 profit
$4,920/$17,580 = 27.9% cash-on-cash achieved in just 7 months on shares that:
· Went up.
· Stayed unchanged.
· Dropped by up to 5.5% to as low as $22.50/share.
Should CAKE close below $22.50 on Jan. 22, 2011:
· The calls will expire and the puts will be exercised.
· You will be forced to buy another 1000 CAKE.
· You’ll need to lay out an additional $22,500 in cash.
· Your final position will be 2000 CAKE shares.
Cost for those 2000 shares: $17,580 + $22,500 = $40,080 or $20.04 /share.
$20.04 is lower than the absolute lows for the entire 5+ year period from March of 2003 right through May of 2008. Trailing 12-month EPS {through March, 2010} are higher than they were at any time during that whole time period.
Dr. Paul Price – June 22, 2010
www.BeatingBuffett.com
Disclosure: Author is long CAKE shares and short CAKE options.
