Cheesecake Factory (CAKE) stock lingers near 11-year low on weak prospects

Cheesecake Factory Incorporated’s (NASDAQ: CAKE) stock lingered near an 11-year low of $14.52 as the rapid spread of the Covid-19 impacted the restaurants, which stand closed temporarily. The concerns grew after the company withdrew its Q1 and full-year guidance.

Also, the company has been negotiating with landlords about not paying rent on April 1 as the global pandemic has affected the restaurant chain’s cash flow, according to a report in industry publication Eater. The restaurant industry has been in trouble since the beginning of this year.

Experts have been concerned about the recovery of the restaurant industry from the present crisis. The industry has been impacted by the general aversion towards Chinese food, cancellation of food plans, selection of grocery over takeout and restaurants closures since the beginning of the year.

Cheesecake Factory has been struggling to pay rent due to falling revenues. For increasing its cash position, the company drew an additional $90 million on its revolving credit facility. It is evaluating additional measures to further preserve financial flexibility.

Also, in recent years the company witnessed a decline in the casual dining comparable traffic due to increased competition, coupled with an oversupply of restaurants. This backdrop has made it even more challenging to improve customer traffic. This could negatively impact the results for the future.

As of February 26, 2020, the company owns and operates 294 restaurants throughout the US and Canada under brands including The Cheesecake Factory, North Italia and a collection within FRC subsidiary. Internationally, 26 Cheesecake Factory restaurants operate under licensing agreements.

The store closure is likely to impact the overall revenue growth, which is driven by revenues from new restaurant openings and increases in comparable restaurant sales. Changes in comparable restaurant sales occur due to variations in customer traffic, as well as in average check.

For the fourth quarter, the restaurant operator reported a 201% jump in earnings helped by the inclusion of the acquisition of North Italia and the remaining business of Fox Restaurant Concepts. Revenue jumped by 19% year-over-year and comparable restaurant sales increased by 0.6%.

The stock opened lower and traded in the negative territory on Thursday. The shares are undervalued at the current levels with a 32% estimated return. The performance outlook is positive for the near term but it is negative for the long term. The stock is trading below the 50-day moving average of $31.95 and the 200-day moving average of $38.58. The majority of the analysts have assigned the stock “hold” rating, with an average price target of $37.19.