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CBRL Group (NASDAQ:CBRL) June 6, 2008 1:35 PM price: $28.32
52-week range: $24.00 (Jan. 22, 2008) - $46.30 (Jun. 15, 2007)
Dividend = $0.18 quarterly = 2.55% current yield.

CBRL operates 576 Cracker Barrel Old Country Store restaurants/gift shops in 41 states. Sites are mainly located near major highways and tourist areas. Prepared food represented 78.4% and retail sales were 21.6% of FY 2007 revenues. CBRL also owns and operates 143 company owned and 26 franchised Logan's Roadhouse restaurants.

These shares have been quite volatile this year as the weak economy and high gas prices have dampened investor enthusiasm for casual dining stocks. The valuation is absolutely compelling, though. Here's the story…

CBRL is on a fiscal year ending in July. Each FY since 2000 has shown improved EPS and the dividend has been increased significantly since 2003. Both are due to finish FY 2008 [ends July 31] at all-time record levels despite all the macro-economic headwinds.

The per-share data since 2001 as reported by Value Line:

FY 2008 includes estimates for Q4.

 

FY ........ Sales …..Cash Flow……...EPS ……Dividend ...Outstanding Sh…..Avg. P/E

2008 …$110.00…..$5.70 ………$3.03 …….$0.72 ……..22.00 MM …….. 13.9x

2007 ….$99.35 ….. $5.61 ………$2.52 …….$0.56 ….…23.67 MM …….. 17.2x

2006 ….$85.46 ….. $6.10 ………$2.50 …….$0.52 …….30.93 MM …….. 15.3x

2005 ….$55.07 ….. $4.16 ………$2.45 …….$0.48 …….46.62 MM …….. 15.9x

2004 .…$48.82 ….. $3.70 ………$2.31 …….$0.44 …….48.77 MM …….. 15.9x

2003 .…$45.92 ….. $3.57 ………$2.09 …….$0.02 …….47.87 MM …….. 14.0x

2002 .…$41.11 ….. $3.07 ………$1.64 …….$0.02 …….50.27 MM …….. 16.6x

2001 .…$35.69 ….. $2.52 ………$1.30 …….$0.02 …….55.03 MM ……...13.5x

 

The company has been buying in their own shares by the bucketful. The large drop in share count in FY 2006 came via a Dutch tender. Other years' share count drops are from an ongoing share repurchase authorization. This is a 'slow motion LBO' that is allowing existing shareholders to benefit instead of just the private equity guys.

Over the past seven years EPS surged from $1.30 to $3.03 and the dividend grew from $0.02 to $0.72 annually. Corporate revenues have nearly tripled and cash flow has more than doubled on a per share basis.

CBRL shares right now trade well below the low prices from the whole period 2004 – 2007 when the price never got below $30 for even one day.

When CBRL was out-of-favor in 2001 it bottomed at 13x earnings. Buyers then saw their shares jump from $15.70 to $42.10 over about 26 months. CBRL hit a low of $30.00 in early 2004 with FY EPS of $2.31. From the P/E of 13 at that time the shares moved to $47.90 in under two years for a gain of > 60% (including yield).

CBRL shares are even cheaper now then they were at the lows in 2001 or 2004.

Value Line's 3 – 5 year target price is listed at $50 - $70 even assuming a much lower than typical 12 multiple. They give CBRL shares a 95th percentile ranking for earnings predictability as well.

At the current quote of $28.32 these shares trade for < 9.4 times current FY earnings and just 8.6x the consensus FY 2009 estimate of $3.31/share. CBRL's 10-year median P/E has been 16x. Even 14 times year ahead projections would lead me to a target price of $46.34 or up 63% plus dividends.

Is $46+ a crazy goal? Nah. CBRL shares actually touched high share prices of $42.10, $43.10, $44.60, $47.90 and $50.70 in calendar years 2003-2007 respectively- all years when the fundamentals were not as good as they are today.

 

Here's my low-risk option play for those of you who like to make exceptional returns even on shares that don't do much.

 

………………………………………………cash outlay ………….cash inflow

Buy 1000 CBRL @ $28.32 ………………….$28,320

Sell 10 CBRL Jan. $30 Calls @ $3.40 ………………………………$3,400

Sell 10 CBRL Jan. $30 Puts @ $5.00 ……………………………….$5,000

Net Cash Outlay ……………………………..$19,920

 

If CBRL shares move up to $30 by January 19, 2009 (a gain of just 6% from the current quote):

Your shares will be called (sold) for $30 /share = $30,000.

Your puts will expire worthless (good for you as a seller).

You will own no shares and no options.

You will have received at least two dividends totaling $360.

Your cash balance between the stock sale and the yield will give you $30,360 for your original cash outlay of $19,920.

That's a $10,440 gain or 52.4% cash-on-cash if CBRL finishes above $30 on expiration day next January.

Risk? Break-even is figured as follows:

 

  • On the shares you own it's $28.32 less the $3.40 call premium = 24.92 /share.
  • On the puts it's the $30 strike price less the put premium of $5 = $25.00 /share.
  • Overall you're in profit if CBRL shares stay above $24.96 through expiration date.

Worst case is that you'll end up owning 2000 shares of a fine stock at a price below the lows of 5 of the past 6 years. At your break-even CBRL would be selling for at < 8 times FY 2009 projections and with a 2.88% yield.

Disclosure: Author owns CBRL shares and is short CBRL options.

Source: A Low-Risk Cracker Barrel [CBRL Group] Options Play