The restaurant business has been a major victim of this recession. And, like the rest of the industry, Ryan's Family Steak Houses, which has 131 owned and 34 franchised restaurants, has seen its sales slump and profit margins shrivel. So why have some big pros been eating up the stock in recent weeks?
For one thing, management has been trying to beef up revenues. A recent change that seems to have produced fast results in several of its Florida restaurants is the installation of bakeries that sell fresh breads, pastries, and desserts. The bakeries added 15% to those restaurants' sales, notes one analyst, who believes that Ryan's will introduce bakeries in most, if not all, of its outlets. The company also plans to add 16 restaurants this year.
Aside from being a "nice economic-recovery play," Ryan's is a "perfect takeover stock to start picking up now," says one New York money manager who has been buying. He puts Ryan's value at $15 a share--about twice what the stock is selling for.
Never mind that some analysts think Ryan's current price-earnings ratio of 17 is a bit rich, says this money manager. He believes that with the company's clean balance sheet, little debt, and good potential for growth during the coming recovery, "Ryan's is an attractive regional operation for the likes of PepsiCo or Bob Evans Farms." He notes that PepsiCo is beefing up its restaurant business to complement its Taco Bell and Pizza Hut operations. And he adds that Bob Evans, which owns restaurants in the Midwest, is rumored to be in the market for another chain. Most of Ryan's restaurants are in the Southeast. Bob Evans wants to acquire food-related companies, says a spokesperson. PepsiCo says it is expanding its restaurant operations.