Bloomin’ Brands: A Dual-Pronged Strategy To Uncover Value

"Huntsville, Alabama, USA - June 9, 2011: Outback Steakhouse sign illuminated in the early evening. Sign located on Whitesburg Drive in Huntsville, Alabama."

Since its stock market debut in August 2012, shares of Bloomin’ Brands, Inc. (BLMN) have gained only 36.3%, a mere 4.5% gain annually when compounded over the seven-year-period. Putting into context, the S&P SmallCap 600 Index more than doubled over the period. The stock has slipped nearly 7.0% this year (compared to 9.7% gain in the S&P SmallCap 600) and hit a 52-week low over the week. Fuelled by falling foot traffic after the removal of price discounting, Bloomin’ Brands has witnessed sliding sales amid restaurant closures and disposals, while its margins continued to trail those of competitors.

Concerns from the activist shareholder Barington Capital last year capped off a leadership change and a boardroom reshuffle a few months ago. The new CEO, a veteran in the industry, will oversee a more sustainable approach to grow sales through an enhanced in-store experience and a focus on off-premise sales. Despite improving same-restaurant sales amid promising foot traffic, the company continues to trade at historic lows. Even with a modest consensus EPS forecast for 2019, the five-year median forward P/E indicates a premium of 22% for the stock, an attractive buying opportunity taking into account the company’s rising dividend yield. However, the short-term pressure on the valuation remains as Bloomin’ Brands enters a period of lean sales and thin margins.

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Disclosure: I/We have no investments in the stocks mentioned in the above article and don’t intend to open any within the next 72 hours. I wrote this article for myself, and it expresses my opinion. I/We receive no compensation, nor do I/We have any business relationship with any companies whose stocks are mentioned in the article.

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