Valuation Scorecard: Stock Rating C-Low Neutral (2/27/24)-Cheesecake Factory Inc. (CAKE).

Over the next 6 years, Cheesecake Factory shares will need to reach $60 to achieve average annual stock market performance of 9.0%. Cheesecake Factory’s stock price will need to reach $70 by 2028 to achieve upper quartile performance. What is the market’s view of Cheesecake Factory’s future operating performance as reflected in the current price of $35?

Executive Summary

• Price Target Research identifies Cheesecake Factory as having: very high profitability, very low expected growth, low stability, and low financial strength. A big negative influence on Cheesecake Factory’s valuation is its poor Growth.
• Very high valuation, lagging shareholder returns. Current valuation levels are very high relative to the Cheesecake Factory Peer Group. Recent market returns have substantially underperformed the Cheesecake Factory Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Cheesecake Factory shares should reach a level of $37 by 2028 — an 4.1% per year total shareholder return. A 2028 stock price of $60 would reflect median performance and a price of $70 would be required to reach upper quartile performance.
• Growth has been Cheesecake Factory’s biggest valuation weakness. Historical growth has been below average relative to the Cheesecake Factory Peer Group and forecasted growth is relatively very low. Equity Growth, Asset Growth, and EPS Growth have lagged. These factors have negatively affected market perceptions of Cheesecake Factory. Cheesecake Factory’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Cheesecake Factory’s consensus growth expectations are lower than historical growth.
• Return on Equity is group leading. Pretax Margin, Pretax ROA, and Asset Turnover are group lagging. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Cheesecake Factory’s risk profile is very unfavorable. Overall variability has been above average with above average revenue variability, very high E.P.S. variability, and above average stock price volatility. Financial Strength is very low and earnings’ expectations are very low. The debt/capital ratio has risen very significantly.

Click to read the full Scorecard report