Cracker Barrel Old Country Store (NASDAQ:CBRL) has been a standout among restaurant stocks. Admittedly, that’s a rather low bar to climb over, but the company’s stock has rebounded over 140% from a low of $56.72 at the onset of the Covid-19 pandemic.
The company will report fourth-quarter 2020 earnings on September 15. Analysts expect the company to show growth in both earnings and revenue from the prior quarter. However, if the company hits its revenue estimate of around $483 million it will be about a half billion lower in revenue on a year-over-year basis.
I don’t want to dwell too much on the revenue number. Like Cracker Barrel’s stock price, that’s actually not too bad all things considered. But it does make you wonder how much further the stock can climb. Five years ago, the company generated around $2.6 billion in revenue. For much of that year, the stock was trading right about at levels it’s trading now with positive earnings.
Again, I’m not going to beat on the company’s earnings too much. They should come back. The question is whether or not you want to pay a premium for the stock’s future performance; especially when that future is more uncertain than in prior years.
Loyal Customers Helped Curbside Delivery
Cracker Barrel kept many of its restaurants open during the early days of the pandemic. This was a time when most Americans were under shelter-in-place orders. But although the restaurant chain could not accept in-person traffic, they did a good business with curbside delivery.
This shows the appeal of the company’s distinctive brand. And the stock surged when Cracker Barrel, along with other restaurant chains, began to reopen. But the company wasn’t built just for local traffic.
Cracker Barrel Was Built to Be a Road Trip Favorite
When Cracker Barrel first rose to prominence, it had a business model that was geared towards being where its customers were. When my kids were younger, long road trips to grandmother’s house frequently included a stop at a Cracker Barrel. First, you never had to worry about kids complaining about the menu. And second, they were always accessible because they were always in high traffic areas right off the highway.
Capturing traveler dollars is a key part of the company’s business model. I’m not suggesting it doesn’t have a loyal following in the communities it serves. But the “pit stop” element of it is critical to the company creating revenue.
Needless to say, travel may be coming back. But it’s still not at the level it used to be. Part of this is the fact that there’s nowhere to go. Large events are still canceled. Live sports are back, but largely without fans.
And to make the situation more challenging, many part-time furloughs at the onset of the pandemic are becoming permanent. And many workers who had “safe” jobs in corporate America are finding themselves looking for work. That means that even if a vaccine was available tomorrow, pent-up demand may meet the realities of constrained budgets.
Cracker Barrel is Not a Value Play At the Moment
Cracker Barrel has attracted a lot of investor attention due to a reliable and strong dividend. In May, Cracker Barrel announced it was suspending its dividend. It would seem that this will be a temporary occurrence. However, since it’s difficult to determine when business will be back to normal, it’s hard to forecast when it will reinstate its dividend. And the other question is if it will be reinstated at its prior level.
Hold on Cracker Barrel Until the Pandemic Eases
Cracker Barrel has been getting favorable attention from analysts. However, this seems to be a case of analysts catching up to low expectations. The $139 consensus 12-month price target suggests that analysts feel Cracker Barrel is priced just about right. And I agree.
Cracker Barrel is proving it can generate revenue even under the most adverse of circumstances. But the stock still exists in a sector that relies on more than just curbside delivery.
The bullish case for Cracker Barrel would point out that its stock is about 20% below its 52-week high. The company’s restaurants are reopening so both revenue and earnings should grow. The bearish case will say that the stock currently looks like it’s priced in all the growth there is to get. And, it doesn’t offer investors the reward of a dividend for their investment.
Investors are starting to expect more from earnings. The “coronavirus pass” has expired. Cracker Barrel may beat expectations but will have to put a much rosier picture on future demand than I foresee. In the last quarter, the company withdrew any future guidance. Investors will want to pay close attention for any news on that front.
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