With a recent makeover to its design and overall concept, California Pizza Kitchen (CPKI) has earned a Buy recommendation from Zacks senior restaurant industry analyst Ann Northrop, CFA. For details, we looked into her latest report:
We are maintaining our Buy rating on California Pizza Kitchen. In our view, CPKI can grow earnings at a mid-teens rate over the next couple of years by adding full service restaurants in existing and new markets (at a rate of about 10% annually), increasing revenue (we estimate comps +3%) and restaurant margins through its new prototype restaurant design, and by further penetrating the fast casual market with new ASAP concept.
At 21x 2008 estimated EPS [earnings per share], the forward P/E [price-to-earnings] multiple is lower than the 25% EPS growth rate we expect over the next two years, and reasonable given the longer-term 15% EPS growth rate potential. Our six-month price target incorporates a flat multiple of forward EPS.
We think the new format's interior, which includes more upscale furnishings and an attractive semi-circular bar, increases the customers perception of the price-value relationship offered by CPKI and will in turn enable the company to add higher-priced items to the menu and earn additional high-margin revenue from the bar. Early indications are very promising. Management indicated that ROI [return on investment] for the new-format restaurants is exceeding 20%.
Read the analyst report on CPKI