An Appetizing Aroma from O'Charley's

By Mara Der Hovanesian

Nashville's O'Charley's (CHUX ) is exporting its Southern hospitality to Yankee territory. The casual-dining chain is heading for New England with a bid for Ninety Nine Restaurant & Pub. The deal, set to close early in 2003, will add 78 eateries to the existing 182. Small-restaurant stocks have lost just 10.8% on average this year, compared with a 23% drop for the S&P 500. O'Charley's stock has actually gained 8.3%.

The $160 million price tag for privately held Ninety Nine was just 6.2 times trailing cash flow--"very attractive," says Robert Derrington of institutional broker Morgan Keegan. He upgraded O'Charley's to outperform after it hiked earnings targets to $1.34 a share for 2002 and $1.55 for 2003--not including what Ninety Nine kicks in. Derrington sees an easy 40% uptick in sales--"very fruitful to the bottom line."

Jeff Omohundro of Wachovia Securities (WB ) reiterated his strong buy after the company beat third-quarter estimates. The stock trades at 11.8 times Omohundro's 2003 estimates, roughly half the peer-group's p-e. He sees a jump from $20 to $29 in a year.

Gene Marcial is on vacation.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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