Tech Indigestion? Some Pros Are Hungry for Cheesecake

This past year's stock market was frighteningly similar to my dinner last night -- both lacked decent consistency and left a bad aftertaste.

Tuesday's Stories

New Year, New Rules: As Demand Ebbs, Chip Stocks Look Broken

New Year, New Rules: Searching for Value Amid the Retail Rubble

Happy New Year. Proceed With Caution

Will 2001 Be Haunted by the Specter of the Four E's?

Pros Offer Allocations for 2001. You Don't Have to Follow Them

Tech Indigestion? Some Pros Are Hungry for Cake, a Restaurant Chain

Click here to see Monday's stories

The wild swings and unpredictable behavior most certainly left a sour taste in many mouths toward year-end. But looking forward to 2001, as we are wont to do in this week's Stocks in the Spotlight, there is a company that many pros find both sweet and consistent -- the Cheesecake Factory(CAKE Quote).

The Calabasas Hills, Calif.-based restaurant chain is indeed tasty to investors. While tech and financial stocks have been taking the market for a ride, the Cake has been quietly rising. Boasting year-to-date returns in the realm of last year's tech stocks, 84.6% -- and one-year gains even higher at 134% -- Cake has crushed the lightweight market this year.

Some followers of the company think the stock has more room to grow. "I think that a long-term upward trend for the Cheesecake Factory is intact. This company is performing exceptionally well right now," said Allan Hickok, analyst at U.S. Bancorp Piper Jaffray.

The restaurant chain has beaten Street earnings estimates for the past seven quarters and has had positive comparable restaurant sales for the past 33. "It's been one of the most consistent stories of the last three or four years," said David Geraty of Dain Rauscher Wessels.

The Cheesecake File

Operations

Business: Operates a chain of casual-dining restaurants and bakeries.

1999 Revenue: $347 million

1999 Earnings Per Share: 69 cents

2000 Estimated Earnings Growth: 38%

Stock Snapshot

52-Week Range: $17.8 - 48.4

Percentage Change from Jan. 1: 92.1%

Market Cap: $1.3 billion

P/E Multiple: 47.5

Shares Outstanding: 31.2 million

Moving into a new year and a new market cycle, there seems to be no shift in the Cheesecake paradigm. Looking forward, "They look like a 25% growth company," said Geraty. The company sports a forward price-to-earnings ratio based on 2001 expected earnings of 40, poising them for strong continued future growth. The Cake "has a premium multiple that it has earned, and I would argue that it deserves it," Hickok said. With its fourth quarter ending this month, year-on-year EPS growth is supposed to increase by 38% for fiscal year 2000. Next year EPS growth is estimated at 22%. Company sales, meanwhile, have increased 31% in the past year.

5 Day

5 Year

So, how do they pull it off? While Hickok says, "It's just an exceptional company," the strong performance is actually based in the massive numbers of customers it serves and its avoidance of overexpansion. The Cheesecake Factory just opened its 40th restaurant this month and feels no need to close sites due to a tightening economy and less personal expenditure. It is even looking to open another 10 restaurants in the next fiscal year.

The Cheesecake Factory also maintains restaurant spinoffs -- express services and a luxury dining facility in Las Vegas. And accounting for almost 6.5% of company revenue is the massive factory that the company runs. Yes, the Cheesecake Factory actually has a cheesecake factory.

Below is a list of mutual funds with significant Cheesecake Factory investments that hope Cake presents them with their just desserts.

Funds With the Biggest Stake in Cheesecake Factory
Fund	Percentage of Assets in CAKE	1-Week Return	YTD Return
(BCSIX Quote)Brown Capital Management Small Company Instl	3.7%	-4.4%	10.6%
(FWGGX Quote)Fortis Global Growth A	3.2	-4.9	-19
(FCAPX Quote)First Funds Capital Appreciation I	2.5	-7.8	5.8
(DPSGX Quote)Delaware Pooled Small Cap Growth Equity	1.9	-10.9	-6.6
(SECUX Quote)Security Ultra A	1.8	-5.5	13.3
(PHSAX Quote)Phoenix-Engemann Small Cap A	1.8	-12.1	-19.3
(DELTX Quote)Delaware Trend A	1.8	-11	-7.4
(IHSAX Quote)Hartford Small Company A	1.6	-7.3	-16
(PCSGX Quote)PaineWebber Pace Sm/Med Co Growth Equity P	1.6	-11.3	-10.3
(PAMAX Quote)Phoenix-Engemann Small & Mid Cap Growth A	1.2	-10.8	-15.3
Source: Morningstar. Performance through Dec. 19.