Thursday, KeyBanc Capital upgraded California Pizza Kitchen Inc. (CPKI) shares to Buy from Hold with a price target of $18. The brokerage raised its 2009 third quarter EPS estimate to $0.24 from $0.21, its 2009 EPS estimate to $0.80 from $0.77, and its 2010 estimate to $0.90 from $0.83.
Analyst Brad Ludington noted that while California Pizza Kitchen pre-announced third quarter of 2009 same-store sales, or SSS, that declined by 8%, the company still managed to increase its EPS guidance to $0.22-$0.24 from the previous range of $0.19-$0.21.
Additionally, commentary from management on the press release has given the analyst reason for some optimism for CPKI's sales and earnings trends in the coming quarters. Management indicated that it has seen signs of success from sales-driving initiatives that include an expanded wine program, a catering initiative and a take-out call center.
The company also continues to see impressive cost controls through a combination of a theoretical vs. actual food cost initiative, an energy efficiency program and a best practices initiative, all of which the analyst believes would lead to sustainable cost cuts.
Although CPKI's SSS have struggled significantly in recent quarters, the analyst remains encouraged by the fact that management has resisted the urge to resort to deep discounts to drive traffic, as he feels that it would only damage the brand in the long term.
While the analyst also continues to expect to see strained top-line performance by CPKI in the coming months, his channel checks have become incrementally more positive in recent weeks with what appears to be increases in traffic levels, and he believes that the company's sales-driving initiatives would help further accelerate its SSS recovery in 2010 and beyond as consumer sentiment begins to improve.
Accordingly, the analyst upgraded the stock as he believes that the third quarter of 2009 SSS decline of 8% would represent a bottom for CPKI and feel that shares are currently too deeply discounted to its peers.
Currently, CPKI is up $1.22 or 8.70% and trading at $15.24.
For comments and feedback: editorial@rttnews.com