Investment bank plays bull and bear on the same industry.
Earlier today, investment bank R.W. Baird downgraded restaurant chains Cheesecake Factory (CAKE) and Texas Roadhouse (TXRH) from outperform to neutral. Both moves were part of the bank's recommendation that investors reduce exposure to casual dining. From the Texas Roadhouse downgrade:
With our preference shifting away from casual dining chains that are sensitive to cyclical swings, we are stepping to the sidelines on TXRH.
From its Cheesecake Factory downgrade:
With our near-term preference shifting away from casual dining chains that are sensitive to cyclical swings, we now view the risk/reward on CAKE as roughly balanced at recent levels (EV/EBITDA 7.6X). We remain confident in the 1long-term outlook for CAKE, but we think the stock could be range bound in the near term, with valuation expansion potentially restricted by cautious investor sentiment amid a choppy macro backdrop.
All of this comes just one business day after Baird was listed as co-lead underwriter on a $75 million IPO proposal for Chuy's Holdings Inc., a private equity-backed operator of 27 Mexican-themed casual dining restaurants. In other words, the bank is asking investors to buy into a market segment that it says is facing a period of stagnation.
Chuy's has stronger year-over-year growth than either Texas Roadhouse or Cheesecake Factory, but the macro risks are virtually identical. In fact, Chuy's lists "declining economic conditions" as its leading risk factor. If Texas Roadhouse and Cheesecake Factory are neutral for factors outside of its control, what makes Chuy's a buy?
A Baird spokeswoman declined to comment, except to point out that IPO filing doesn't mean that the company necessarily plans to price anytime soon. I also put in a call to David Tarantino, the Baird analyst who downgraded Texas Roadhouse and Cheesecake Factory, and will update this post if he replies.
We're dining out again and buying airlines tickets. But is it a comeback?
For decades, the consumer has been the engine driving growth in this country. Since the economic downturn started in 2007, consumers have watched as their most prized assets – investments and homes – erased much of their value. They have felt poorer, so they've saved more and spent less as they paid off debt following years of too MORENin-Hai Tseng, Writer - Jan 14, 2011 11:48 AM ET
Earlier this month, Hal Rosser announced his departure from Bruckmann, Rosser, Sherrill & Co., a New York-based private equity firm that he had co-founded in 1995 with two other veterans of Citicorp Venture Capital. Only sort of tongue-in-cheek, I wrote that Rosser's departure was another cautionary tale against putting your own name on the door.
Well, it seems that Hal didn't take my advice. Today he announced a new firm called Rosser MOREDan Primack - Jan 11, 2011 11:49 AM ET
|HP soars as Meg Whitman turnaround continues|
|Tesla repays federal loan nearly 10 years early|
|How police can find your deleted text messages|
|Insanely durable smartphone ... from Caterpillar?|
|Stocks slip as Fed sends mixed message|