Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

Magazine

Cooking with Gas at AFC Restaurants


Good money can be made investing in overlooked restaurants and specialty retailers, argues Roger Lipton, whose hedge fund, RHL Associates, has scored a 21.5% gain so far this year--on top of last year's 25% return--by investing in such stocks. So he continues to fancy them. His top bet and a major holding: AFC Enterprises (AFCE), which operates and franchises more than 3,600 restaurants and quick-service cafes in 46 states and 28 countries. AFC's more popular outfits include Popeye's Chicken & Biscuits, Church's Chicken, Cinnabon bakeries, and Seattle's Best Coffee. Goldman Sachs took AFC public on Mar. 1, 2001, at 17 a share. The stock shot up to 25 by May, before easing to 19.91 in recent weeks.

Lipton figures the stock could jump 50% in the next 6 to 12 months, based on unit and sales growth and what he thinks is its low valuation. AFC's overall unit growth has been 11% to 13%, which translates, says Lipton, to a 15% to 20% sales growth. The stock is cheap, he argues, trading at 15 times estimated 2001 earnings of $1.20 and 13 times 2002's $1.54. AFC earned 96 cents a share in 2000. The stock sells at 6.9 times estimated 2001 cash flow of $3.13 a share, and 5.4 times 2002's $3.50 a share.

The reality, says Lipton, is that if the company sustains its sales and earnings growth rate over the next year or so, AFC will end up a buyout target of the big restaurant chains. By Gene G. Marcial


LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus