( IHP) purchase of
is a textbook case of how to make an acquisition.
For one thing, IHOP's CEO Julia Stewart is a former Applebee's executive, so she knows the Kansas-based company's business inside and out. Second, the acquisition appears to be immediately accretive to IHOP's cash flows.
IHOP trades at 14 times earnings before interest, taxes, depreciation and amortization, and Applebee's is being acquired for 9 times EBITDA. Analysts have been estimating solid revenue and earnings growth over the next year from Applebee's. So even without adding anything to it, the acquisition looks like a no-brainer. Plus, we have confidence that Stewart knows there are no hidden skeletons here.
Finally, however, Stewart has a plan: Raise cash by selling the company-owned stores and focus on building the brand via franchises. The immediate effect will be an improvement in the balance sheet at IHOP and improved profitability at Applebee's as well as streamlined operations by combining with IHOP's own franchise-building staff. IHOP is a strong buy right here, thanks to this acquisition.
So how might we go about finding the next Applebee's, and which portfolios on Stockpickr could've helped us uncover this situation before it happened?
First off, former
Securities and Exchange Commission
head Richard Breeden launched an activist hedge fund in the past year for which Applebee's accounted for nearly 20% of his portfolio. He also owns
Bausch & Lomb
( BOL), another takeover. Knowing that Breeden seems to have an eye for these M&A plays, his
portfolio on Stockpickr is worth checking out for ideas.
Another interesting portfolio is
where Applebee's had been ranked as the cheapest. Others of the five include
White Mountains Insurance
Another great resource is
, a list of companies that have increased earnings for 10 years in a row. Applebee's is on this list, as is
and about 30 others.
And finally, Applebee's was in the
, a portfolio of the highest-ranking IBD restaurants as ranked by the CANSLIM methodology used by
Investors Business Daily
Chipotle Mexican Grill
Buffalo Wild Wings
are also on that list.
Many different signs were pointing to Applebee's getting acquired, and I believe the next targets can be found in these lists as well.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for
The Financial Times
and the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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