Cheesecake Factory: Why the Moving Price Target?

As I predicted in February, Cheesecake Factory’s (CAKE) share price has risen into the teens although this quarter’s earnings even surprised me. The Cheesecake Factory once again has proven its staying power considering the economic environment with earnings of 17 cents per share.

As management has promised, CAKE has cut costs, reduced debt and growth has slowed to 1-2 openings this year. A surprising improvement from last quarter’s comparable restaurant sales helped earnings, however there are a few more difficult quarters ahead given unemployment and foreclosure rates in states where CAKE has a larger presence including California and Florida.

Let us review what analysts have predicted over the past month or so for CAKE:

• A Piper Jaffray analyst downgraded CAKE to sell on February 13^th with a target of 6 dollars.
• KeyBank upgraded CAKE to a buy on April 16^th with a target of 17 dollars.
• Goldman Sachs downgraded CAKE to neutral on April 20^th with a target of 13 dollars.
• Standpoint Research downgraded CAKE to a hold on April 22^nd.

There were other analysts that set a price target of under 10 dollars in mid February. Analysts have become trigger happy in this current market. I ask why the target varied between 6 dollars and 17 dollars in just a two month period. Aren’t they all getting the same information? This should be a lesson to them and the investment community to start looking at fundamentals to avoid unintended manipulation of a stock’s share price. During this period CAKE has seen a low of around 7 dollars on March 5^th and a high above 15 dollars on April 22^nd based on analyst comments and other market sentiment.

I believe CAKE management will handle the recession well, given the company’s proven history. I would be a buyer of CAKE under 20 dollars however as in past history, CAKE stock becomes inflated when they beat the street views and the stock tends to drop to reasonable levels. Investors interested in CAKE should consider a long term commitment if they want to see reasonable gains.

Disclosure: I have been long CAKE since 1997.

Comments

[ECONOMICS 101:]

Johnathan Vrozos does not trust analysts, you must do your own analytics.
I believe analysts are swayed and influenced by their brokerage house who needs to make money by upping or dumping on a stock. Don't forget the brokerage pays the analysts.
Don't believe in the Chinese walls of separation within the firms.
By Johnathan Vrozos
johnathanvrozos.ca

Apr 25 08:46 AM

[IraB:]

it seems that with CAKE,some ANALysts downgraded the stock in order to bring the stock price down, so they and their clients can get the stock cheaper,,, this is not the first time a downgrade on a stock is followed by a rise in stock price,,, oh the games the big boys play

Apr 25 03:44 PM