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TheStreet Open House

Why CEC Entertainment (CEC) Is Jumping Today

Stocks in this article: CECAPO

NEW YORK (TheStreet) -- CEC Entertainment (CEC) rose 12.5% to $54.50 Thursday on news that Apollo Global Management (APO) will acquire the Chuck E. Cheese operator for $1.3 billion.

Apollo will pay $54 a share in cash for the restaurant operator. The sale price is a 25% premium on CEC's closing price on Jan. 7, the companies said. In a press release CEC CEO Michael H. Magusiak said the deal "recognizes the value of CEC's global brand, strong cash flows and growth prospects while providing our shareholders with an immediate and substantial premium."

CEC adopted a shareholder rights plan after announcing the acquisition in order to "assist the Board of Directors in overseeing a fair and orderly process."

TheStreet Ratings team rates CEC ENTERTAINMENT INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate CEC ENTERTAINMENT INC (CEC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, reasonable valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, CEC's share price has jumped by 44.86%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CEC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • 39.41% is the gross profit margin for CEC ENTERTAINMENT INC which we consider to be strong. Regardless of CEC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.79% trails the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 0.3%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • CEC ENTERTAINMENT INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CEC ENTERTAINMENT INC reported lower earnings of $2.46 versus $2.82 in the prior year. This year, the market expects an improvement in earnings ($2.95 versus $2.46).

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