Cheesecake Factory: Zacks’ Bear of the Day Play

Few things in life are more fickle than consumer tastes. One day you’re the hottest thing on the block and the next day you’re in the bargain bin. The same goes for restaurants. Case in point, I remember going to eat the buffet at Sizzler’s. What ever happened to that place? If restaurants don’t adapt to the changing tastes and preferences of their patrons they can find themselves boarded up and out of business.

When I make a list of restaurants I haven’t been to in forever, today’s Bear of the Day is on that list. The Cheesecake Factory (CAKEAnalyst Report) is now scraping the plate as a Zacks Rank #5 (Strong Sell). Which honestly is a little bit troubling because I have had my fair share of cheesecake in my day. Regardless the story here is less about the quality of the food or how great it tastes and it’s more about the numbers.

Over the last week alone, fourteen analysts have revised their earnings estimates for the current year and next year to the downside. The magnitude of the revisions has been very significant as well. The revisions have dropped current year consensus down from $2.21 to $2.11 and next year’s numbers down from $2.58 all the way to $2.41.

The revisions follow an alarming trend for the Cheesecake Factory. Revisions have steadily decreased consensus since March 2013. You can see the continuing downward revisions by taking a quick look at the Price and Consensus chart below. The fear is that as revisions continue downward, the stock will accelerate its decline, catching up with the slack to the downside.

A quick look at the technical picture isn’t making things look all that better. After a huge rally in 2013, CAKE has been range bound for most of this year. Basically the stock has been locked between $42 and $49.50. The most recent bull run took the stock from $42.50 in early August to the highs of October at $47.47. But since the bearish estimate revisions have come in, CAKE has tumbled, taking out the lows for the year a few days ago before recovering the last couple of days and hanging in at $44.58. With that low pierced and the bad news for the current year’s numbers you may want to stay away from this one.

Investors looking for other restaurant ideas can take a look at a few Zacks Rank #1 (Strong Buy) choices in the same space. Domino’s Pizza (DPZAnalyst Report) and Ruby Tuesday (RTSnapshot Report) are two alternatives worth looking into.


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