Cheesecake Factory Takes the Cake (CAKE, KKD, EAT, DRI)

The Cheesecake Factory (CAKE) is an upscale purveyor of 50 varieties of cheesecake and other desserts, with an average check per guest of about $17. Never been to a Cheesecake Factory? Be prepared to wait -- they operate at near capacity 24/7.

The niche chain is currently riding the same regional to national expansion wave that usually generates handsome returns -- think Krispy Kreme (KKD) before it cannibalized sales and mastered the art of creative accounting.

With strong management, brand visibility, and an enviable customer profile, the Cheesecake Factory's still atop our stock menu.

Cheesecake Factory expects to open 21 more US restaurants in 2006, and 2005 marked the first time that annual revenues at Cheesecake surpassed the $1 billion dollar mark.

Today, Cheesecake will report its Q4 earnings numbers after the close. Analysts are looking for 24% rise in revenues to $330.7 million and a 21% gain in net income.

Although the stock trades at a somewhat lofty 36 X earnings (rivals Brinker's [EAT] and Darden[DRI] trade for 20 X earnings), we believe Tuesday will be a good day for Cheeseheads.

CAKE 1-yr Chart

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