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Investment Ideas

The table below lists our current Investment Ideas as well as our Watch List – a list of potential ideas that we are in the process of evaluating.  We intend to update this table regularly and will provide detail on any material changes.

Monday Mashup: Adding ZOES, BOBE to the Watch List - invest

DNKN We’re pulling DNKN from the Watch List as a potential long after the company delivered disappointing 1Q14 results.  We like Dunkin’s asset-light business model, but its exposure to the Northeast concerned us and, ultimately, stopped us from recommending it as a long.  Looking ahead, DNKN faces increasingly difficult comps for the next two quarters, which makes us cautious on the name.  

BOBE – We’re adding Bob Evans to our Watch List as a potential long.  Activist Sandell Asset Management has identified significant opportunities for value creation at the company and has presented a compelling case to shakeup the board and spark change.  If the proposed actions are implemented, Sandell values the company at approximately $90/share.  We believe the stock could be worth more than that.


ZOES – We’re adding Zoe’s Kitchen to our Watch List as a potential long.  Zoe’s is a unique concept that we believe is well positioned for growth in the fast casual industry as its aggressive expansion and same-store sales momentum persists.

Look for more to come on these two new names in the coming weeks.

Recent Notes

04/21/14  Monday Mashup: CMG, WEN and More

04/22/14  MCD: Staying on the Sidelines

04/23/14  DRI: The Hour Between Dog and Wolf

04/23/14  YUM: China Leads the Way

04/24/14  CAKE: Still Short

Earnings Call This Week

04/28/14  RUTH earnings call 4:30pm EST

04/28/14  DENN earnings call 4:30pm EST

04/28/14  BWLD earnings call 5:00pm EST

04/29/14  DFRG earnings call 8:30am EST

04/29/14  NDLS earnings call 4:30pm EST

04/29/14  BBRG earnings call 5:00pm EST

04/30/14  PNRA earnings call 8:30am EST

04/30/14  IRG earnings call 5:00pm EST

04/30/14  KONA earnings call 5:00pm EST

05/01/14  DPZ earnings call 10:00am EST

05/01/14  DIN earnings call 11:00am EST

05/01/14  BJRI earnings call 5:00pm EST

05/01/14  BAGL earnings call 5:00pm EST

Chart Of The Day

Putting the coffee surge in perspective – prices are now up 75.7% YTD.

Monday Mashup: Adding ZOES, BOBE to the Watch List - chart2

Recent News Flow

Monday, April 21

  • FRGI Taco Cabana opened its first Cabana Grill restaurant in Snellville, GA as Fiesta Restaurant Group continues its east-west expansion for all of its fast casual brands.
  • MCD The WSJ published an article that shows franchisees were largely critical of management’s efforts to protect market share in the breakfast daypart by offering free coffee amid increased competition.

Tuesday, April 22

  • DRI Starboard Value LP announced it secured enough votes to call a Special Meeting with the intention of stopping the proposed Red Lobster spinoff.  Starboard Managing Member, Chief Executive Officer and Chief Investing Officer, Jeffrey C. Smith, publicly criticized Clarence Otis, saying the Darden Chairman and CEO is in a hot seat.  Darden will have 60 days to call the meeting.
  • BJRI came to an agreement with PW Partners and Luxor Capital, agreeing to nominate three new independent directors at the 2014 Shareholder Meeting.  Mark McEachen has been appointed to the board, effective immediately, while Patrick Walsh and Noah Elbogen will be up for election at the Annual Meeting.  BJ’s also implemented a $50mm buyback program.
  • FRGI upgraded to strong buy at Raymond James with a $48 PT.
  • RUTH upgraded to outperform at Raymond James with a $13.50 PT.
  • DFRG downgraded to market perform at Raymond James.

Wednesday, April 23

  • CBRL Preliminary results reveal that shareholders “overwhelmingly reject” both non-binding proposals put forth by Biglari Capital Corp.  This is now the fourth time shareholders have shot down Sardar Biglari’s activist efforts.

Thursday, April 24

  • DNKN announced a second quarter cash dividend of $0.23 per share, payable on June 4, 2014.
  • SONC promoted James O’Reilly from Chief Marketing Officer to Chief Brand Officer and Todd Smith from VP of Marketing to Chief Marketing Officer.
  • BOBE acknowledged the receipt of notice of nominations put forth by activist Sandell Asset Management and largely rejected Sandell’s recommended steps to increase shareholder value.

U.S. Macro Consumption

The XLY (-0.5%) underperformed the SPX (-0.1%%) last week, as both casual dining and quick service stocks, in aggregate, underperformed the broader XLY benchmark.  The Hedgeye U.S. Consumption Model continues to be a bearish signal, currently flashing red on 7 out of 12 metrics.  We continue to believe the current environment is more conducive to select fast casual and quick service restaurants than casual dining restaurants.

Monday Mashup: Adding ZOES, BOBE to the Watch List - chart3

XLY Quantitative Setup

From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.

Monday Mashup: Adding ZOES, BOBE to the Watch List - 4

Casual Dining Restaurants

Monday Mashup: Adding ZOES, BOBE to the Watch List - 5

Monday Mashup: Adding ZOES, BOBE to the Watch List - 6

Quick Service Restaurants

Monday Mashup: Adding ZOES, BOBE to the Watch List - 7

Monday Mashup: Adding ZOES, BOBE to the Watch List - 8

Howard Penney

Managing Director

Fred Masotta