What Happened?
Shares of restaurant company Cheesecake Factory (NASDAQ: CAKE) jumped 4.1% in the afternoon session after JPMorgan upgraded the stock's rating from Underweight to Neutral and raised its price target.
The bank adjusted its price target to $68.00 from $58.00, citing a positive outlook for the company's profit margins. The upgrade followed The Cheesecake Factory's first-quarter results, which showed a 1.6% increase in same-store sales. Amid the positive sentiment, the stock reached an all-time high of $69.72.
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What Is The Market Telling Us
The Cheesecake Factory’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 15 days ago when the stock gained 4.4% on the news that WTI crude dropped 4.7% to $92.94, providing simultaneous relief on the consumer side (cheaper gas means more dining out) and the cost side (lower fuel and food transport costs).
Restaurants are doubly exposed to oil through ingredient transportation and through customer foot traffic, both of which fall when gas prices spike. When gas prices fall and consumers feel wealthier from a market at all-time highs, they swap grocery trips for restaurant trips: a $40 dinner versus a $15 grocery cart for the same household. The industry had been pressured all year by elevated food and labor costs, so any cost-side easing flows almost entirely to operating margin. Earlier in the session, a report from The Conference Board showed a slight dip in consumer confidence for May.
The index fell to 93.1 from a revised 93.8 in April, as inflationary pressures led two-thirds of consumers to cut back on spending. However, the report highlighted a key shift in consumer behavior: while households are delaying expensive, discretionary purchases, they are continuing to spend on services and 'cheap thrills.' Demand remained strong for essentials and certain services like restaurants, take-out, streaming, and personal care.
The Cheesecake Factory is up 34.7% since the beginning of the year, and at $71.14 per share, it has set a new 52-week high. Investors who bought $1,000 worth of The Cheesecake Factory’s shares 5 years ago would now be looking at an investment worth $1,251.
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