Key points
- Bloomin’ Brands broke above the cup-with-handle base, with recent price momentum supported by above-average trading volume.
- Activist investor Starboard Value has acquired a significant stake in the company and appointed two board members.
- The recent rally followed the company’s announcement that it would close 41 underperforming locations, with plans to open as many new locations this year.
- 5 stocks we like better than Bloomin’ Brands
Bloomin’ Brands Inc. NASDAQ:BLMN is among the latest in a string of companies to attract the attention of activist investors who want to see change that boosts the value of their shares.
The stock is currently out of the buy range following a strong rally, but a pullback to the moving average could provide the next buying opportunity.
Bloomin’ is the parent company of Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar and Aussie Grill by Outback.
Small-cap dividend payer
The stock has some unusual characteristics: It’s small-cap, with a market cap just under $2.6 billion, and it pays a dividend. Bloomin’ Brands’ dividend yield is 3.21%.
It’s not very common for a small US-based company to pay a dividend; the practice is more common outside the United States, where cultural expectations are different when it comes to shareholder returns.
In the United States, small-cap stocks often prioritize reinvesting profits for growth over paying dividends. With limited resources and growth potential, smaller companies typically prefer to allocate profits to expansion and development as a way to maximize long-term shareholder value.
The activist investor gets two seats on the board of directors
Activist investor Starboard Value has made it clear that it is interested in maximizing value, perhaps sooner rather than later.
Activist investors are investment groups or companies that purchase significant stakes in companies to influence business decisions, often advocating for changes to increase shareholder value or improve governance practices.
Starboard acquired a 9.7% stake in Bloomin’ Brands and struck a deal to appoint two board members, Starboard partner Jonathan Sagal and the former Darden Restaurants Inc. NYSE:DRI operations director David George.
Bloomin’ Brands also formed a new operating committee, of which Sagal is a member and George chairs.
Activist investors recently made themselves known at Walt Disney Co. NYSE: DIS and Etsy Inc. NASDAQ: ETSYamong others.
Breakout from the base of the cup with handle
On the Bloomin’ Brands chart, you can see the stock broke out of a six-week cup-with-handle base on Feb. 12. It retreated, finding support in the area of its 50-day moving average.
The stock then rebounded, once again breaking above the buy point above $27.62, and is up 10.23% over the past week.
In fact, the recent breakout added to a broader uptrend that began in mid-November. Bloomin’ Brands shares are up 6.43% in 2024.
The pace of buying has increased in recent sessions, as bullish trading volume has been significantly higher than average.
Bloomin’ stock is showing technical strength, with the chart pattern and strong upward volume suggesting that the upward momentum is likely to continue.
Stocks rally after restaurant closures
A catalyst for the purchase was Bloomin’ Brands’ announcement that it would close 41 restaurants across its portfolio. The closures affected underperforming locations.
David Deno, CEO of Bloomin’ Brands, said the company expects to open 40 to 45 new restaurants this year, offsetting the closures.
The company’s operations outside the United States have grown faster than domestic sales. Earnings rose 17% in 2023, the best net profit performance since 2018.
Traffic at Outback Steakhouse’s U.S. locations fell in the fourth quarter and full year 2023, although 2023 revenue grew 5.7% to $4.67 billion. Price increases were responsible for that revenue growth.
Restaurant stocks outperform the overall market
Earnings data from Bloomin’ Brands shows that the company beat earnings estimates in the latest quarter, while revenue fell slightly short.
As a group, restaurant stocks outperformed the broader market, led by standout stocks including Wingstop Inc. NASDAQ: ALAQuarry Group Inc. NYSE: QUARRY and Shake Shack Inc. NYSE:SHAK.
Bloomin’ Brands shares are currently trading above its consensus price target of $27.90, but following the most recent earnings report, some analysts have upgraded their view. For example, Citigroup increased its target from $25 to $29.
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