The Wall Street Journal -- June 30, 1998
All-Star Analysts 1998 Survey:
Restaurants
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By Richard Gibson
Staff Reporter of The Wall Street Journal
To those who regard "eatertainment" stocks as a flash in the frying pan,
David L. Rose of Jefferies & Co. has a one-word retort: Benihana.
The first-place restaurant stock picker served up an estimated 36% total
return last year in part by putting the Japanese chop-chop house, with its
ambidextrous knife-wielding chefs, on his "buy" list. "They are the original
eatertainment concept, and [the entertainment] centers on the most
important part of the meal, the food," he notes. Moreover, "it's one of the
best same-store sales stories I've seen," says 28-year-old Mr. Rose, who
continues to recommend Benihana's Class A shares despite their 49% price
gain in 1997.
Mr. Rose also won by forecasting handsome price run-ups for Cheesecake
Factory and Foodmaker; the latter he sees becoming a national chain with
a broad menu ranging from teriyaki chicken to fish and chips.
Runner-up Craig Bibb of PaineWebber, with an estimated 31% return, did
nicely with two of the nation's newer eatertainment chains, Rainforest Cafe
and Dave & Buster's, which he discovered late one Sunday night. "The
place was absolutely jammed," recalls Mr. Bibb, 37, who left
PaineWebber last week to start a hedge fund called Jasper Funds. He puts
a lot of stock in customer counts, and Dave & Buster's delivered with a
67.7% share price increase last year.
Four-time All-Star Anton (Tony) Brenner, 45, came in third, with an
estimated 29% return, partly by backing Darden when most analysts
shuned it. "I think there's a long way to go on the stock" still, he says of the
Red Lobster and Olive Garden chains operator. Mr. Brenner, who recently
left UBS Securities for Cruttenden Roth, of Irvine, Calif., also earned a
1998 All-Star award for beverage stock picking.
The top three's portfolios were as diverse as an Oriental buffet. But the trio
agree that the U.S. restaurant industry is headed for significant
consolidation, particularly in the casual-dining sector. Mr. Brenner suggests
looking for companies restructuring their balance sheets away from
real-estate holdings.
Mr. Bibb advises that "as a concept matures, you should look for new
ideas." That thinking generally leads him to small-cap stocks. One he is
watching: Il Fornaio, a casual northern Italian eatery. He also remains a fan
of Cracker Barrel Old Country Buffet's management.
Both Messrs. Rose and Brenner scored last year with NPC International,
the nation's largest Pizza Hut franchisee. "There's tremendous opportunity
for them to acquire Pizza Huts that Tricon will be selling over the next five
years," Mr. Rose says. "They have a great track record in turning Pizza
Huts around." Mr. Brenner says Tricon Global Restaurants, last fall's
PepsiCo restaurants spinoff, could harvest substantial growth by enhancing
sales at existing outlets. "They also have plenty of potential with dual
branding" -- for example, putting a KFC and a Taco Bell in the same site,
he says.
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