The corona virus has hit many sectors hard, but none as hard as the Airline, Energy, Cruise, Hotel, and Hospitality industries. Companies like Darden, Cheesecake , Dennys, and Bloomin’ Brands have lost as much as 80% of share value during the Pandemic Sell-Off of 2020, while the broad market has corrected only 37%. The overreaction to the downside is quite understandable with the fear of the unknown. One must realize with great volatility comes great opportunity. With that said, let's examine the hardest-hit industries and what people will do once the Great American Lockdown ends - potentially as early as May 1st. Will people be running to catch a flight on an airplane for business or leisure travel? Probably not. Will people rush to get on the next tightly-packed cruise ship with limited medical facilities? Probably not. Long car trips across the country burning gas and staying at hotels? Doubtful at best. However, the first thing Americans will do across the country with their stimulus money is get out of the house and go eat, and indulge in the favorite American pastime: food! So when we look for value in the most beaten down sectors, the restaurant industry stands out to us. Americans, who are tired of being locked up and cooking every meal at home will want to get out of their homes and eat, safely . We anticipate that restaurants will employ social distancing in the dining rooms. As well, we anticipate early-bird and late-night dinner specials will spread their prime-time income hours out. Instead of getting a rush of people for lunch from 12-2pm or dinner from 6-8pm, expect restaurants to promote normally low-traffic time slots to bring people in for safer social distance dining. It will take time for America to get back to normal. Wall Street is forward looking, so expect share prices to rebound ahead of the actual rebound - smart money knows!
One restaurant name that stands out to us is BLMN at $8.62. Their brands include Carrara’s, Outback, Flemings, and Bonefish Grill. They have over 1000 locations in mostly suburban areas, many of which are located outside the hard-hit Covid-19 cities. A 50 % retracement from February prices would be $12.50 per share. Weeks ago, the company accessed its 400 million dollar credit revolver for liquidity. They allowed Jana Partners , a NYC based hedge fund who owns significant chunk of stock, to appoint 2 board members. A financial back stop in place? The CEO has forgone base salary and recently purchased almost a million dollars of stock in the open market. BLMN has paid a handsome dividend for many years which has grown at 27% per year since 2015. It recently suspended the dividend and cut guidance like many other companies. The stock boasts a 90+% institutional ownership and had been a pillar of stability at over $20 per share for years. With steady dividend growth and share appreciation we can understand why the big money has liked BLMN. It has recently attracted heavy Call purchase option activity, shown above. This month Bloomin is launching in Florida, The Aussie Grill, which will be a fast casual cheap price point dining experience aimed the fast food customer with the ability to handle high volume, drive through and pickup business. . President Trump has discussed at his evening press briefings of pushing through legislation that would allow every business meal at any restaurant to be a tax deduction. The CEO of Bloomin will be with the President at the White House this week ,along with a handful of other restaurant Ceo's to participate in the Economic Council the President has constructed to re-start the economy. President Trump is famous for signaling his next moves in advance through his twitter account or press briefings. This would be an enormous shot in the arm for the battered hospitality industry. Once the institutional money starts to redeploy in the stock market, backed by the bazooka of the FED, many over cooked stocks will rebound sharply. The upside for BLMN is looking Bloomin' good!
We currently own shares in BLMN