Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) is an interesting stock for a variety of reasons. This article will present a general overview of the company along with discussing some recent developments. Also, it will present a variety of factors that make this stock a unique choice for an investment portfolio.
Per Yahoo Finance, a company profile is as follows. "Einstein Noah Restaurant Group, Inc. owns, operates, franchises, and licenses bagel specialty restaurants in the United States. The company operates, franchises, or licenses various restaurant concepts primarily under the Einstein Bros. Bagels, Noahs New York Bagels, and Manhattan Bagel brands. As of October 2, 2012, it operated approximately 797 restaurants. The company was founded in 1992 and is headquartered in Lakewood, Colorado."
I find this to be important because of their brand names. This is a company I have heard of, have eaten food from, and I personally know it to be a quality establishment. A lot of times, small cap investors may not really have heard of the company they are investing in. For me, this creates a premium when I have knowledge of the company. With a market capitalization of $267,520,000 as of 12/7/2012, this company qualifies as a small cap stock under most metrics. An example of why market capitalization matters to me more than stock price is when we compare BAGL to Krispy Kreme (NYSE:KKD). The stock price as of 12/7/2012 for KKD closed at $9.03 and they have a market capitalization of $602,000,000. BAGL's stock price is $15.77 as of 12/7/2012. For every $100,000 invested in BAGL, you would own .0373% of the company at current levels. In KKD, for $100,000 invested now you would own .0166% of the company even though you would have 11,074 shares of KKD instead of 6,341 shares of BAGL, not considering commissions on the purchase of the stocks. Even if you invested $1,000 in the stocks, this disparity in ownership percentage would exist in the same way.
Now, I would like to discuss the factors that cause this stock to stand out in my mind as a good choice for further research. For one, it is a small cap stock and it is a play on that segment of the market. Looking at a 5 year chart of BAGL, the stock price has not surpassed $19.12 per share, which was achieved at the beginning of the chart. It has been range bound but there were times that provided great entry points that investors may have made considerable money on the stock. One such entry point was on November 17, 2008, when the stock price closed at $3.15. In essence, this range bound and essentially flat trading over these 5 years tells me that small-cap stocks in general have not been in favor as much as they had been prior to 2008. On October 29, 2007, the stock price closed at $23.79. I believe that if small-cap stocks go back into favor, owning this stock is a great and safe way to play it. This is based a lot on the fact that they are earning money and pay a dividend, which will be discussed next.
Dividend - A nice surprise for shareholders was announced on December 7, 2012. They announced that they will pay a special dividend of $4 per share to shareholders on record as of December 17, 2012. This dividend will be paid out on December 27, 2012. This provides an interesting incentive to purchase the stock before that time. Also, they currently pay a 12.5 cent dividend per quarter, for a total dividend of .50 per year, giving it a yield of 3.17% as of Friday December 7, 2012's closing price of $15.77, not including the special dividend this year. Many small-cap stocks do not pay a dividend, but this one sure does.
Earnings and Free Cash Flow - The analyst consensus full year earnings estimate for 2012 is for earnings of .95 per share and for $1.06 per share in 2013. Free Cash Flow based on cash flow from operating activities less capital expenditures has been positive in every quarter this year and in every full year cash flow statement since at least 2009. It has easily covered the dividend payments. The dividend payout rate as a percentage of free cash flow was 30% for the year ended January 2 2012, when they started paying the dividend. For the first three quarters of 2012, the dividend payout rate is a combined 37.79% as a percentage of free cash flow based on the cash flow statements in Yahoo Finance. This dividend looks, based on this, to be well covered.
Aside from these financial attributes, there are other reasons that I like the stock. For one, I live in the Las Vegas area. Out here, there are several Einstein Bagels locations and they are usually the place to go for a breakfast food office party when bagels are the food of choice. They have great bagels, and they also have different flavored "schmears" (cream cheese spreads). To me, this food is good quality and is up to par with the food you would get at Starbucks or any other place. The bagels are fresh and are of premium quality. This speaks loudly to me as I know that if they expand, people will enjoy their products in my opinion.
I realize that the company may not be as well known in other regions of the country, but in Las Vegas they have a large presence. Also, the company is traded on the Nasdaq. This is important because for micro caps or small caps, if they are only OTC stocks, there are less requirements for them to be listed. It is more of a stringent requirement, including stock price and capitalization requirements, to be listed on the Nasdaq. That also makes this a legitimate company in my mind and increases my level of comfort with them. I tend to like to invest in companies that I have heard of and if I believe in their product or services. In this case, I think that BAGL has great potential and that they have already established themselves as a quality company. Furthermore, I like the stock because David Einhorn, a billionaire, has it included in Greenlight Capital's fund holdings as of 9/30/12. This adds further credibility to the company when you have such a big name in the financial word have such a large position in the company.
Conclusion - To summarize this initial analysis of BAGL, I believe it is a company worth taking a look at for several reasons. It is a small-cap stock that is earning good money, pays a healthy dividend that is well covered, and has a good and recognizable brand name.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is not to be construed as investment advice. This article is for informational and educational purposes only.