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CAKE: Cheap Valuation with Potential Activist Catalyst, MP Entry

The Cheesecake Factory, Inc. (CAKE), the upscale dining chain known for its large menu and strong brand value, is an interesting situation the market loves yet continues to underperform peers. However, with the recent addition to its Board of Directors of a sell-side restaurant research analyst, we believe activism is beginning to influence the company. JANA Partners has also been exploring the sale of peer Bloomin' Brands, Inc. (BLMN). On our valuation and potential activism, it's a good time to enter CAKE.

The Edge View...
Strong brand value, competitive positioning, recent mid-2019 acquisition for further growth and still underperforming its peers over the last three years, we see this as a “too sweet to pass up” opportunity for a strategic investor to help point out and implement operational fixes that will help continue its tradition of creating long-term value for its shareholders. Boasting over 250 dishes made fresh from scratch, including 70 varieties of proprietary cheesecakes and other baked desserts, The Cheesecake Factory, Inc. (CAKE) is an iconic brand and a fan favorite in the upscale casual restaurant market. CAKE has 218 Cheesecake Factory owned restaurants in in 39 states the US and another 21 licensed restaurants internationally (Middle East, China and Mexico). CAKE also operates 14 Grand Lux Cafe restaurants, 2 RockSugar Southeast Asian Kitchen restaurants and 1 fast casual concept restaurant called Social Monk Asian Kitchen in California.

Other major factors examined in The Edge's analysis on this activism opportunity include:
Competitive positioning in the "upscale casual" restaurant market;
Underperformance of its peers and the broader market;
Potential growth in recent acquisition;
Franchising has been rewarding for CAKE's peers;
CAKE is benefiting from its international licensing deals;