Bottom of the Barrel: A Rare Chance in the Restaurant Business
If you're hungry to invest in the restaurant sector, you might want to consider this rare opportunity.
Atlanta-based Rare Hospitality (RARE) serves up steak -- and plenty of it. With a trio of steakhouse chains under its roof, this restaurant company continues to expand from its Southeast roots. Over the past five years, it has grown restaurant revenue by more than 15% annually.
A Beefy Trio
Rare Hospitality sports three restaurant concepts: its flagship LongHorn Steakhouse, a chain of 152 midpriced steakhouses primarily in the Southeast and mid-Atlantic; Bugaboo Creek, a chain of 19 midpriced steakhouses in the Northeast; and The Capital Grille, 15 high-end steakhouses in the eastern half of the U.S.LongHorn is the workhorse of Rare's stable, providing nearly 70% of its sales. Modeled after a prototype Texan steakhouse, LongHorn serves choice beef with a full-service bar. Fourth-quarter revenue at LongHorn grew 12.8%, driven by the opening of 19 new restaurants in 2001 and 1.8% growth in same-store sales . Rare plans to open 17 to 20 new LongHorn restaurants in 2002 and anticipates same-store sales will grow 1% to 2% in 2002. Bugaboo restaurants, which contribute about 13% of Rare Hospitality's sales, bring the flavor of a Canadian Rockies lodge to New England. In the fourth quarter, Bugaboo posted a 10% increase in fourth-quarter revenue, including a record 10th consecutive quarter of same-store-sales growth. The company expects Bugaboo's same-store sales to grow 1% to 2% in 2002 and plans to open three new Bugaboo restaurants in 2002.
|At a Glance
Rare Hospitality International (RARE:Nasdaq)
|52-week Range||$32.00 - $14.50|
|Market Cap||$536.6 million|
|Avg. Daily Volume||265,590|
|Company Web site||www.rarehospitality.com|
|*Based on 2002 Estimates Source: Market Guide, Zacks, Company Reports|
Prudent ManagementRare has been conservative with its growth plans, its revenue and earnings estimates and its managed costs, hallmarks of successful restaurant operators. A combination of that discipline and a successful growth strategy gives DiFrisco reason to think Rare Hospitality may surprise investors in 2002. Management has offered guidance for this year's earnings estimates of $1.38 to $1.43 a share.
Toughing It OutAlthough the outlook for the year is bright, the first quarter will be challenging. The company estimates it will earn 40 cents to 42 cents for the period, compared with 43 cents in the year-ago first quarter. Rare management says same-store sales could decline as much as 1% at the LongHorn and Bugaboo chains and 2% at the upscale Capital Grille outlets in the first quarter of the year.
|Food for Thought
Rare Hospitality's growth is well-done
|Year||Revenue (in millions)||Earnings per Share|
|*Estimates. Source: First Call, Company Reports, TSC Research|
Playing DefenseSmall-caps were not spared in last week's general market malaise. The best performer among those I like was my most recent pick, Alexandria Real Estate Equities (ARE), which gained more than 3.5%.
|Conservative Barrel Stocks Hold Their Own
But aggressive names are lagging behind
|Original Barrel Rating||Current Outlook||Company/Ticker||Date of Mention||Current Price||Mention Price*||Price Last Week||% Change From Mention||% Change Weekly|
|3||Positive||NetBank (NTBK:Nasdaq)||Feb. 6, 2002||$13.79||$13.45||$14.81||2.53%||-6.89%|
|2||Positive||(ENDO:Nasdaq)||Jan. 23, 2002||13.49||18.21||14.91||-25.92%||-9.52%|
|2.5||Positive||SurModics (SRDX:Nasdaq)||Dec. 19, 2001||33.91||34.60||33.79||-1.99%||0.36%|
|2.5||Positive||VitalWorks (VWKS:Nasdaq)||Nov. 21, 2001||4.55||4.30||4.85||5.81%||-6.19%|
|2||Positive||FPIC Insurance (FPIC:Nasdaq)||Nov. 14, 2001||13.32||12.83||13.60||3.82%||-2.06%|
|3||Positive||Witness Systems (WITS:Nasdaq)||Oct. 31, 2001||12.75||8.06||12.60||58.19%||1.19%|
|2.5||Market||Coastal Bancorp (CBSA:Nasdaq)||Dec. 12, 2001||30.40||27.84||30.44||9.20%||-0.13%|
|2.5||Market||Coinstar (CSTR:Nasdaq)||Nov. 7, 2001||27.80||19.96||28.03||39.28%||-0.82%|
|2.5||Market||Hibbett Sporting Goods (HIBB:Nasdaq)||Oct. 24, 2001||32.05||30.33||32.15||5.67%||-0.31%|
|2.5||Market||Quixote (QUIX:Nasdaq)||Oct. 3, 2001||17.73||21.44||18.00||-17.30%||-1.50%|
|3||Special Situation||Quanta Systems (PWR:NYSE)||Jan. 9, 2002||15.09||16.05||15.10||-5.98%||-0.07%|
|2||Avoid||Actrade (ACRT:Nasdaq)||Jan. 30, 2002||13.26||$20.65||$16.30||-35.79%||-18.65%|
|0.5||Avoid||Goody's Family Clothing (GDYS:Nasdaq)||Nov. 28, 2001||4.05||4.50||4.20||-10.00%||-3.57%|
|1||Avoid||Bridgford Foods (BRID:Nasdaq)||Oct. 10, 2001||10.75||13.18||10.75||-18.44%||0.00%|
|2.5||6.04||Empire District Electric (EDE:NYSE)||Jan. 16, 2002||20.53||21.23||20.98||-3.30%||-2.14%|
|2.5||2.43||Met-Pro (MPR:NYSE)||Oct. 17, 2001||14.35||11.16||14.00||28.58%||2.50%|
|2.5||4.62||Integra Bancorp (IBNK:Nasdaq)||Jan. 2, 2002||19.75||20.75||20.60||-4.82%||-4.13%|
|3||4.49||Alexandria Real Estate (ARE:NYSE)||Feb. 13, 2002||41.67||40.25||40.25||3.53%||3.53%|
|*Average price on date of mention. Source: TSC Research|
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