Cheesecake Factory ( NASDAQ: CAKE ) stock slipped on Tuesday as Citi took its rating to Neutral from Buy.
The bank’s analysts cited store-level profit growth and margin recovery concerns as key factors augmenting their formerly bullish thesis. Additionally, an over 25% jump for the California-based restaurant chain shares have left them fully valued, in the team’s view.
“We expect CAKE to post solid 4Q/1QTD results (ex-weather) on elevated pricing but worry that ongoing inflation creep and no incremental plans to attack the cost structure will continue to translate into choppy store-level profit growth over time,” the team explained. We can outline a path to greater multiple expansion over time but have lower confidence in this occurring over the [next twelve months].”
Citi maintained its $39 price target despite the rating change. Shares of Cheesecake Factory ( CAKE ) fell 3.3% in premarket trading on Tuesday.
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Cheesecake Factory downgraded at Citi amid margin, valuation concerns