PFCB is starting to show up as a long idea in some people’s models.  Is now the time?


I’m getting a lot of questions about PFCB on the long side following the recent EPS miss and strong underperformance of the stock.  I agree there is big money to be made catching these mid cap restaurant turnarounds but, like catching falling knives, timing is critical.  The risk of sitting on the sidelines for now is that a PE firm or an activist investor may decide to make a run at PFCB.  However, at this point, we think there could be some downside risks, but we lack the catalyst to see how the turn is going to unfold.


From a valuation standpoint, PFCB is trading at 5.47X EV/EBITDA or about one multiple points away from the low multiple of 4.52 set back on 11/21/08.  Certainly, the stock is cheap but - in our view - it’s cheap for a reason. 


In order to become more constructive on the stock, we need a catalyst and visibility that there is a clear path to financial recovery.  While the company is addressing the needs of the core customer, it is very difficult to get a grip on how the company’s turnaround plans will impact the financial performance.  Until that becomes clearer, we will remain cautious on this name.


First, the company will be making several changes to the menu.  Enhanced Happy Hour offerings will likely drive traffic at the Bistro but judging the impact on margins from the new lunch menu will be difficult to do.  The company is attempting to boost its lunch business.  Management said that the change centers on a shift from serving dinner at lunch to serving lunch at lunch.  A standalone lunch menu has been rolled out in test markets with lighter fare that is portioned and priced for lunch and provides a wider variety of items.  At the same time, the new dinner menu will offer lower-priced entrées ($8-$12 range).  These initiatives are in the testing phase and, in our view; do not serve as catalysts on the long or short side.  We will be sitting and watching to see how these initiatives pan out.


Second, the guest service enhancements Bistro, through targeted staffing increases have not fully impacted the P&L yet.  Most importantly, spending on the new restaurant look and feel has been accelerated but how the capital will be deployed and what the return on that capital will be is unclear.


I’m not ignoring the changes at Pei Wei but the issues are largely the same. 


As you can see from the PFCB Hedgeye quadrant charts below, it will be another six months before investors will likely see improvement in the financial performance of the company.  In contrast to Brinker, a casual dining company that had successfully turned around its sales and margin trends before the stock worked. 


PFCB - IS IT TIME TO BUY? - pfcb quadrant chart


PFCB - IS IT TIME TO BUY? - eat quadrant



Howard Penney

Managing Director


Rory Green




Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more