Einstein Noah Restaurant Group, Inc. (BAGL), Bob Evans Farms Inc (BOBE), Jamba, Inc. (JMBA) – Asset-Light Models: The Future for These Restaurant Chains

Page 1 of 2

Despite the fact that the restaurant industry is quite cyclical, companies can find ways to soften the cycles. Franchising is one of the best ways to achieve expansion and widen margins while at the same time assuring some revenue stability.

Although Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)Bob Evans Farms Inc (NASDAQ:BOBE), and Jamba, Inc. (NASDAQ:JMBA) do not initially seem to be great investment opportunities, their transitions toward asset-light models will bode well for them. On their way to increased profitability, are these restaurant chains worth your money?

Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)

Holding such a name…
Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) is a leading operator of sandwich restaurants including the Einstein Bros, Noah’s New York Bagels, and Manhattan Bagel brands. With a market cap of less than $300 million, this small company caught my eye because of its ongoing restructuring program. Einstein Noah is shifting away from its company-owned stores business model and into a capital-light franchise and licensing model, and this augurs well for its future.

Offering one of the best unit economics in the industry, the company is certainly an attractive franchise opportunity. This already shows on the 14.7% (year-over-year) increase in franchise and license revenues reported last quarter, compared to the 0.7% growth in company-owned restaurant sales . More than 200 new location commitments currently in the franchisee pipeline confirm that this trend should only accentuate going forward. With barely 10% of its locations operating under a franchise model, there’s plenty of room left for refranchising and expansion, both nationally and internationally.

Another growth driver for the next few years stems on the management´s focus on increasing the profitability of its existing restaurants. Initiatives to achieve this goal include everyday value menus for breakfast and lunch, an expansion of the product offering, and an incursion into the specialty beverages segment. These steps should help the company reach the broader public while retaining existing customers.

Trading at 23 times its trailing earnings but only 0.7 times its sales, considerably below its peers’ average, while paying out a 3% dividend yield, this is a stock to buy and hold.

These farms can be harvested
Bob Evans Farms Inc (NASDAQ:BOBE) operates restaurant chains, and it also produces food products for national grocery stores. With a market cap of $1.4 billion, its scale is much greater than that of Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)’s. Although the company seems poised to expand, most analysts expect it to under-perform its industry peers in terms of earnings-per-share growth over the years to come .

These projections are reflected in Bob Evans Farms Inc (NASDAQ:BOBE)’ valuation at 0.9 times its sales, less than half the industry’s average valuation . Although growth will be moderate, does the current valuation (and a 2.4% dividend yield) make this stock a good investment option?

By operating in both the restaurant and grocery segments, the company can better weather fluctuations in consumer spending. This added to the fact that Bob Evans Farms Inc (NASDAQ:BOBE) actually owns most of its restaurants´ real estate, provides it with considerable stability and predictability, as well as some backup in case things go wrong in one end of the business.

Similar to Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL), I believe that Bob Evans Farms Inc (NASDAQ:BOBE)’ future is reliant on the expansion of its licensing model, Bob Evans Express. Although the first Express store was opened only a few days ago, opportunities abound and growth prospects look promising. In addition, a remodeling plan for its existing stores should also drive growth and margins in the years to come.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!