Cracker Barrel: Value at the Old Country Store

11/24/2017 5:00 am EST

Focus: CONSUMER

Kelley Wright

Managing Editor, Investment Quality Trends

Cracker Barrel Old Country Store (CBRL) develops and operates the Cracker Barrel Old Country Store concept in the United States, noted Kelley Wright, a leading value investor and editor of IQ Trends.

The stores consist of a restaurant that serves breakfast, lunch, and dinner, and a gift shop. The gift shops offer various decorative and functional items, as well as candies, preserves, pies, cornbread mixes, coffee, syrups, pancake mixes, and other food items.

There are approximately 645 Cracker Barrel stores in 44 states. The company was founded in 1969 and is headquartered in Lebanon, Tennessee.

We recommend CBRL as it is within its Undervalued area of low-price and high-yield. Historically, the stock offers good value when its dividend yield is within 10% of 3.20%.

Based on the current dividend, CBRL yields around 3.05%. The stock has earned the IQ Trends "G" designation for outstanding dividend growth, which we define as a minimum 10% annual dividend growth for the trailing twelve years.

The return on invested capital (ROIC) for CBRL is 14%, and its free cash flow yield (FCFY) is 5%. Interestingly, the Street has the stock priced as if its future profit growth will be 10% lower than its historic average profit growth.

That is a tad irrational given that its ROIC is almost 10% higher than its weighted average cost of capital (WACC). In short, we find CBRL attractive as the downside risk is low and its upside potential is significantly higher than the current price.

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