The Cheesecake Factory (CAKE) is paying down all of its debt and generating excess free cash flow that is going back to shareholders as share repurchases and dividends, and it is gearing up make a large imprint internationally, says Scott M. Swanson, Partner and Senior Equity Analyst at Crowell, Weedon & Co.
“With more limited capital spending needs, the company is generating a lot of excess free cash flow now. Most of that’s going back to shareholders in the form of either share repurchase and/or dividend, so with modest expansion rate, with improving operating margins and with a declining share count, they’re able to drive pretty good earnings per share growth,” Swanson said.
The Cheesecake Factory is also on the cusp of an attractive international opportunity by licensing its brand to different parties abroad, thus driving pure profit that will drop straight to the bottom line, says Swanson.
“Although it’s early days, the restaurants that have opened in the Middle East have exceeded their sales expectations, so it looks like a big opportunity for them,” Swanson said. “First was the Middle East, now they’ve announced South America, Mexico, and I think it’s reasonable to assume that at some point down the road there will probably be an Asian presence or a European presence. So it’s a real nice upside, I think, to the earnings growth as we look out over the next several years.”
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