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Why ‘Hedgies’ Are Bullish on Cracker Barrel Old Country Store, Inc. (CBRL)

Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) was an actively traded stock among hedge fund managers during the fourth quarter, with the likes of Jim Simons of Renaissance Technologies, Kenneth Squire of 13D Management and Cliff Asness of AQR Capital Management either adding to existing positions or initiating new positions. Other investors who initiated positions in the restaurant include Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, David Shaw of D E Shaw and Roger Ibbotson of Zebra Capital Management.


Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is a $2.4 billion market cap company that operates its namesake restaurants and retail stores side-by-side in 626 locations across 42 states in the U.S. The stock has risen 27% over the past 12 months, aided by improving financial performance and positive earnings surprises. Despite a negative impact from the severe winter weather during its fiscal second quarter (ended January 31, 2014), the company maintained its full year EPS guidance of $5.60-5.80 for its fiscal year 2014.

Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) has been mired in an ongoing battle with activist investor Sardar Biglari, whose diversified holding company, Biglari Holdings (NYSE:BH), is its largest shareholder with a 19.9% stake. In addition to seeking board seats, Biglari had called for a $20 per share special dividend last year; all of these proposals were voted down by other shareholders. Biglari’s latest proposal, disclosed in December, is for the board to consider a possible sale of the entire company to an outside bidder, including Biglari; Cracker Barrel will hold a special meeting to vote on the matter on April 23, 2014.

The stock looks attractive from a valuation perspective, trading at forward P/E and EV/EBITDA multiples of 16.6X and 9.1X, respectively, versus 26.5X and 11.3X, respectively, for its peer group of restaurants. Although Cracker Barrel’s margins are below average, they have been on an improving trend, and the company’s return on invested capital metrics are actually better than peers. With moderate new store openings planned for the rest of the year, the company should be able to return more of the free cash flow it generates back to shareholders in the form of dividends (which currently yield 2.9% and could grow further) and share repurchases. Of course, a sale of the company at an attractive price would also be beneficial to shareholders, but Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) seems to be doing a good job of executing on its plans as a stand-alone business. With its largest stakeholder being an activist investor watching their every move, management has every incentive to continue delivering for all shareholders.

Disclosure: none

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