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Famous Dave’s (NDQ:DAVE) Oct. 3, 2009 close: $5.40

52-week range: $2.00 (Mar. 5, 2009) - $7.25 (Jul. 30, 2009)

Famous Dave's of America, Inc. operates restaurants. As of June 3, 2009, the Company had 176 Famous Dave’s restaurants in 38 states, including Company-owned restaurants and franchise-operated restaurants. The Company’s restaurants feature hickory-smoked off-the-grill entree favorites. Typical designs include a designated bar, a signature exterior smokestack, a separate entrance for its category-leading take-out business and a patio (where space permits).

Dave’s routinely enters BBQ competitions and has garnered over 300 awards for everything from the best ribs to the best BBQ sauce to the best BBQ cookbook. 2008 saw the first drop in EPS since 2003 due to recessionary conditions as well as a $6.912 MM one-time charge for asset impairment, lease terminations, and unit closure expenses for stores deemed underperformers.

First half earnings rebounded strongly to $0.41 /share and consensus views now see 2009 and 2010 earnings coming in at $0.63 and $0.73 respectively. At last week’s close of $5.40 that makes DAVE’s multiple about 8.6x this year’s and 7.4x next year’s expectations. Compare those with the historical P/Es of the past in the chart below.

Here are the company’s reported per share numbers since 2004…

Year

Sales

C/F

EPS

B/V

Avg. P/E

52-wk. range

2004

8.76

0.71

0.29

3.82

26.6x

4.65 – 13.61

2005

9.66

0.83

0.40

3.51

29.4x

9.39 – 15.00

2006

11.51

1.00

0.46

3.54

26.5x

11.09 – 17.24

2007

13.10

1.15

0.59

3.16

30.4x

11.03 – 23.37

2008

15.46

1.15

0.04*

2.88

9.08

2.39 – 14.36

* 2008 EPS excluding the one-time charges = $0.52

It doesn’t seem a stretch to think Famous Dave’s can snap back to at least 10 – 12 times earnings over the next year or two. That would lead to a target price range of $7.30 - $8.76 by year-end 2010. The low-end goal would be 35.2% above the current quote and the higher target would represent more than a 62% gain.

Are those achievable? Why not? Just a glance at the table above shows actual trades between $9.39 and $23.00 during each year 2004 right through 2008. DAVE traded as high as $7.25 just a few months ago.

The company has been gradually retiring shares since 2003. Common shares outstanding have dropped from around 12.16 million to 9.19 million since year-end 2003.

There are options available on this stock but they trade very thinly and with wide bid-ask spreads. Use limit orders if you choose to play with DAVE’s puts or calls.

The last 10 insider transactions were all BUYS (by the same Director) and each was a purchase at higher than last week's closing price.

Disclosure: Author is long DAVE shares and short DAVE options.

Source: Famous Dave's: Long-Term Targets Seem Achievable