Cracker Barrel's Strong Execution Justifies Its Premium Stock Price

NEW YORK (TheStreet) -- You would have to go all the way back to the fourth quarter of 2012 to find the last time restaurant operator Cracker Barrel Old Country Store (CBRL) missed Wall Street's earnings estimates. In a sector driven by high consumer traffic and same-restaurant sales, the Lebanon, Tenn.-based Cracker Barrel, which operates more than 600 company-owned locations in 42 states, has been a standout performer.

The company has benefited from a well-diversified business, selling groceries, music and an online store storefront. These businesses have helped Cracker Barrel grow its earnings for the last nine quarters, including average year-over-year increases of 7% in the previous five quarters.

For that level quality, Cracker Barrel stock -- up 41% the past 12 months -- has crushed the broader market. And ahead of the company's fiscal-third-quarter earnings results due out Tuesday before the opening bell, don't hold your breath waiting for CBRL shares to fall below their fair market value. That's not likely to happen.

At 23 times last year's earnings, Cracker Barrel stock is -- at worst -- fairly valued when compared with a P/E of 21 for the average S&P 500 stock. But don't confuse "fairly valued" to mean lack of upside. You'll be hard pressed to find another company in the S&P 500 with a better (or as consistent) level of execution as the management team at CBRL has demonstrated. This includes having beaten both earnings and revenue estimates for four consecutive quarters.

In that vein, that CBRL stock is up just 1% so far in 2015 doesn't make sense. Even more remarkable, despite the company's solid performance record, it makes even less sense to consider that five days ago these shares were actually down on the year. As evidenced by the 0.73% increase in analysts' average earnings-per-share estimate for the just-ended quarter, it would seem Wall Street has taken notice of this error.

Likewise, full-year earnings estimates for the quarter ending July has also increased in the past 60 days from $6.51 per share to $6.52. But here's the thing, assuming Cracker Barrel meets its $6.52 full-year earnings estimate, this means next year's earnings projections of $7.11 per share is expected to increase by 9%, or 2% slower than the company's projected long-term (five-year) growth rate of 11%.

Why is this important? It also means, while the shares aren't cheap today, they are less likely to become cheaper given that Cracker Barrel's growth rate is expected to accelerate in the years ahead. So, with CBRL shares trading today at around $142, or 20 times fiscal 2016 estimates of $7.11 per share, now is as good of as any to own Cracker Barrel stock.

Based on these estimates and Cracker Barrel's projected long-term growth rate, the stock has an average analyst 12-month price target of $155, suggesting 9% gains from current levels. And that's excellent value when combined with its $1.00 per share quarterly dividend that yields 2.81% annually, against just 2% yield for the average S&P 500 stock.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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