By Emilie Bary

Two analysts downgrade Cheesecake Factory stock this week

Can investors have their CAKE and eat it too?

Two Wall Street analysts are skeptical and recently downgraded shares of Cheesecake Factory Inc. (CAKE) following a 29% rise in the restaurant’s name from early January to Monday’s close.

“While CAKE may continue to benefit from customer brand affinity and there is potential for upside earnings if targets are met, we believe that potential demand under industry pressure, headwinds on costs and limited macroeconomic visibility highlight the risk associated with the recent rise in equities and expectations,” UBS analyst Dennis Geiger wrote in a note to clients on Wednesday.

The Cheesecake Factory has a number of factors working in its favor, including “particularly strong brand perceptions, A+ placements, and solid execution,” according to Geiger. But he also fears the company could be hurt by pressures on consumers’ wallets, particularly following a recent UBS investigation.

Respondents “most often cited CAKE’s high food costs and having less free spending money as factors leading to fewer visits,” he wrote. Additionally, Cheesecake Factory lagged its peers during the Great Recession.

Cheesecake Factory shares were nearly flat on the heels of Geiger’s downgrade on Wednesday to sell from neutral, but tumbled 8% on Tuesday after Raymond James analyst Brian Vaccaro moved from outperform to market .

“We believe buy-side sentiment is quite negative on the stock, noting that short interest has reached 19% of the 2022 outbound float,” Vaccaro wrote in his note to clients.

He sees the company facing a more neutral risk/reward balance currently, and said he was cautious about Cheesecake Factory’s earnings outlook.

Shares of the company are up nearly 19% so far this year, compared to a rise of about 4% for the S&P 500 index over the same period.

-Emily Bary

 

(END) Dow Jones Newswire

01-25-23 1454ET

Copyright (c) 2023 Dow Jones & Company, Inc.

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