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Shares of Bloomin' Brands (NASDAQ:BLMN) made their public debut on Wednesday. Shares of the restaurant operator ended their first day up 13% at $12.41 per share.

The public offering

Bloomin' Brands, the owner and operator of 1,247 restaurants and 195 franchises and/or joint ventures, sold 16.0 million shares for $11.00 a piece. The firm sold 13 million shares in the offering, with selling shareholders selling another 3 million shares. Bloomin' raised $143 million in gross proceeds in the offering process. Based on the offer price of $11, the firm is valued at $1.29 billion.

The offering is quite a disappointment. Initially the firm and its bankers set an offer price range of $13-$15 per share. Furthermore the firm and selling shareholders planned to sell a total of 21.4 million shares, split equally. In total, the firm sold about 14% of its shares outstanding. At Wednesday's closing price of $12.41, the firm is valued at $1.46 billion. Major banks which brought the company public were Morgan Stanley, Bank of America/Merrill Lynch, J.P. Morgan, Goldman Sachs and Deutsche Bank.

Valuation

Bloomin' Brands operates in almost all US states and 21 countries in total. It has five concepts: Outback Steakhouse, Carrabba's Italian Grill, Fleming's Prime Steakhouse, Bonefish Grill and Wine Bar and Roy's. The company's Fleming's brand is the fourth largest fine dining steakhouse in the US, according to the company's filing.

The company reported annual revenues of $3.8 billion for its annual year of 2011, up 5.8% on the year before. The company reported a net profit of $100.0 million, compared to $53.0 million in 2010. Earnings per share came in at $0.94 per fully diluted share.

For the first three months of 2012 the company generated quarterly revenues of $1.05 billion, up 5.4% compared to 2011. Growth was driven by a solid 5.2% growth in comparable restaurant sales. Profits fell from $54.9 million to $50.0 million, or $0.47 per diluted share. Based on preliminary data, the company estimates second quarter revenues at $980.9 million, up 2.7% compared to last year. Net income is estimated at $15.5-$17.5 million, compared to $14.0 million in the period last year.

The company operates with $335 million in cash and equivalents and roughly $1.82 billion in various kinds of debt, as of March 31. The firm will use cash and its gross proceeds of $143 million from the offering to retire $248.1 million of senior notes outstanding. The notes carry a relatively high interest rate of 10%. Pro forma, the company has a net debt position of roughly $1.4 billion.

Based on a rough annual revenue estimate of $4.0 billion for 2012, the market values Bloomin' at 0.3 times annual revenues. The company might report annual earnings north of $100 million for a valuation of 13 times annual earnings.

Investment Thesis

Bloomin's public offering was quite a disappointment. The public offering took place at a price of $11, revised downwards from an initial price range of $13-$15 per share. Especially selling shareholders are not excited as they could only sell 3 million shares in the process, down from a planned 10.7 million. The smaller offering at a discount, did however boost demand and shares showed a nice first day gain on Wednesday.

Recently, many restaurant firms have gone public. Del Frisco's Restaurant Group (DFRG) went public almost two weeks ago, trading roughly flat. Mexican restaurant operator Chuy (CHUY) went public the same week in a very successful offering.

Bloomin' Brands seem to trade around a fair value after the offering price got lowered. The firm trades at mere 0.3 times annual revenues and 13 times 2011's annual earnings. Earnings are expected to rise as the company can retire its roughly $250 million senior notes outstanding, which carry an expensive 10% interest rate. Furthermore the firm is reporting small revenue growth compared to 2011, although growth was slowing down in the second quarter.

Investors might be scared off to invest in the restaurant industry. Recently firms like McDonald's (MCD) and Chipotle Mexican Grill (CMG) warned for disappointing same stores sales growth. Furthermore Bloomin' Brands carries a relatively high level of debt.

Despite the short term headwinds, long term investors can find value in Bloomin' Brands offering at the discount.

Disclosure: I am short CMG.