Monday, May 9, 2016

65th AIM Student Update by Mark Lakowske. Cracker Barrel Old Country Store (CBRL). "Will the fast casual concept take hold at Cracker Barrel?"


Cracker Barrel Old Country Store (CBRL $146.41)

Dumpling Platter with a Side of Expansion

By: Mark Lakowske, student at Marquette University

 

 Image result for crackerbarrel

 
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 

Summary

  • Capitalizing Low Gas Prices
  • New ‘Fast Casual’ Restaurant Concept
  • Differentiated Business Model
  • Consistent as its Loyal Customer Base

Cracker Barrel Old Country Store (CBRL) might has historically been one of those sleeper stocks you come across now and again. Every quarter they hit or barely passes analyst estimates, little company expansion, but somehow manages to return 15% to their investors. Cracker Barrel had a tough time a few years ago when the price of oil was near $130 per barrel. As you have probably observed while driving to visit your relatives in Iowa, Cracker Barrel’s are only located near main interstates in rural portions of the country. Since the price of oil has come down significantly in the past year, there is little excuse to avoid that dreadful family reunion, so you might as well swing by a Cracker Barrel on the way for some old school southern style food.

 

Although it might shock the investment world, but Cracker Barrel might be on the brink of serious expansion. The company understands that their typical customer is starting to age quickly and they’ve got to start grabbing millennials to fill the void. The company announced plans for a new ‘fast casual’ concept restaurant set to launch in July 2016. Think Chipotle with biscuits and dumplings instead of burritos and rice bowls. Personally, this is pretty exciting news for me because I like how they are the first company to get into fast casual with a comfort food twist, and I would love to be able to grab some fried chicken and gravy in under ten minutes. Along with expansion into a whole new restaurant sector, the company has been expanding into the west coast. They recently announced a few new stores in Oregon and other parts of the west coast.

 

What has the stock done lately? 

To say the equity markets have had a shaky 2016 is an understatement. Since the start of 2016, the S&P 500 is flat, the Dow is up a measly 2%, and the Russell 2000 (where CBRL is listed) has come back from being down 15% to flat. In the same time period, CBRL is up 15%! With some analysts worried about a possible recession in 2016, a stock in the black is going to be hard to come about. In 2015, Cracker Barrel’s stock slipped 8%.

 

Past Year Performance: 2015 was a solid year for Cracker Barrel financially. Sales were up 6% from 2014, net income ripped up 25% in 2015, and net margins are currently increasing like they historically have—up 15%. As mentioned before, the stock depreciated 8% in 2015 and short interest is roughly 20%

 


Source: FactSet

 

My Takeaway 

I think Cracker Barrel could be one of the most promising, yet conservative, stocks for 2016. I view the stock as a win/neutral position. Lets say this fast casual concept takes off well and opens all sorts of new doors for the firm, then the company will see some serious revenue growth. Lets say the fast casual concept flops and they end of halting the project, then the company just relies on their historically successful business model. The company has the right management in place to keep the ball rolling and other institutional investors think so too. Institutions have gobbled up net 587,000 shares in the last month. I give Cracker Barrel to the latter half of 2016 before I consider buying more or selling my stake in the firm.

 

 

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