Key points
- Bloomin’ Brands reported a solid quarter and expanded margins, boosting its capital return outlook.
- Share repurchase authorization has been increased and could significantly reduce the number of shares in 2024.
- Activist investors are invested in the company and could help it blossom this year.
- 5 stocks we like better than Bloomin’ Brands
Blooming brands NASDAQ: BLMN delivered mixed results for the fourth quarter and provided lukewarm guidance, but repositioning efforts have restaurant stocks thriving in 2024. A massive shutdown effort intended to shed older, underperforming businesses in favor of new and new activities, and the results started to improve. show. The bottom line for investors is that these undervalued, high-yielding stocks are improving cash flow and generating value for shareholders.
Bloomin’ Brands had a mixed quarter; the board increased the buyback authorization
Bloomin’ Brands had a mixed quarter, with net income falling short of Marketbeat.com’s consensus estimates. The $1.19 billion in net revenue fell just 85 basis points short due to weak comp sales. Comp sales declined in most segments; Carrabba’s was the only one to rise in the United States, and was helped by an additional week, forex tailwinds and new store openings. Comps fell -0.2% system-wide, Carraba’s grew 2.5%, International grew 0.6%.
Margin news is mixed but ultimately supportive of rising stock prices. GAAP changes and adjusted margins at the restaurant and company levels offset each other, leaving year-over-year adjusted earnings better than expected. The $0.75 mark is 1,000 basis points higher than consensus and outpaces revenue growth.
Bloomin’ Brands’ cash flow is strong, allowing for balance sheet improvements, distribution growth and share repurchases. The dividend is less than 30% of earnings, with no red flags on the balance sheet. The company’s cash balance improved year-over-year despite an increase in working capital, reducing net debt. Net debt is less than double equity and equity is increasing, 50% year over year.
The board authorized a new share repurchase program that should help improve shareholder value. The new authorization replaces the previous one, increasing the available balance by approximately $300 million, or approximately 12% of the pre-release market capitalization. The new approval includes a provision to reduce and early cancel debt, another move that improves shareholder value.
Guidance for 2024 is in line with the outlook for distribution increases, robust share repurchases and debt reduction. The company expects U.S. sales to remain stable at up to 2%, including the addition of 40-45 new restaurants, or +3.5% at the midpoint. The new stores position the company to sustain single-digit growth in 2025 and could beat forecasts in 2024. In any case, expected adjusted earnings of $2.51 to $2.66 are sufficient and in line with forecasts of analysts.
Activist investors can create more value for shareholders
Bloomin’ Brands is a closely held stock that is more than 90% owned by institutions. Institutional holdings include significant positions by Vanguard and BlackRock for their funds and a large amount of private capital. Recent buyers include Starboard Capital, which holds nearly 10% of the shares. Starboard is known for investing in deeply undervalued companies. Among their success stories is Darden Restaurants, Inc. NYSE:DRIa stock that has significantly outperformed Bloomin’ Brands over the past decade.
The technical perspectives are conflicting. The market is bounded and moves lower after the release. Assuming no one understands the drop, this stock could drop below $20. However, the 30-day moving average provides support. In this scenario, BLMN stock could consolidate at current levels and possibly test recent highs soon again.
The risk is the analysts. Analysts are uncertain about the stock and have reduced sentiment to Hold from Moderate Buy and price target. The consensus is that BLMN is fairly valued near current levels; may not be able to break out of the range until the trend changes.
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