Hardees Beefs Up

Leaning into the wind is how Roger Lipton, managing partner at hedge fund RHL Associates, describes his stance in this soggy market: snapping up beaten-down stocks that have promise. He has taken a big stake in CKE Restaurants (CKR ), which owns and franchises 3,400 fast-food outlets, mostly Hardees and Carl's Jr. The stock fell from 13 a year ago to 3 in October, partly because of revamp costs at Hardees, which included stopping price discounts. CKE has since risen to 5.15.

The turnaround is focused on Hardees, whose acquisition in 1997 lumbered CKE with heavy debt. The No. 7 burger chain, with 2,255 restaurants, "Hardees will become the premier burger destination for the young," he predicts. It has streamlined its menu, introducing "Thickburgers," made of Angus beef, in January. Some 40 menu items have been deleted, as Hardees heads back to its roots -- superior-tasting charbroiled burgers. Says Lipton: "I ate Thickburgers at 10 different Hardees, and they're the best I've ever had."

Some analysts aren't so bullish: Amy Greene of Avondale Partners says CKE is on the right path, but she's neutral on the stock, wondering how fast Thickburgers will catch on. Lipton says CKE's fundamentals are appetizing: Its market cap reflects only the value of Carl's Jr. He sees CKE hitting 15 in two years, based on his operating earnings forecast of $1 a share for the year ending Jan. 30, 2005, up from his 2004 estimate of 28 cents and from 13 cents in 2003.

Lipton's record is eye-catching: RHL was up 79% in the past three years, vs. double-digit losses for the indexes. This year through Apr. 8, RHL is up 2.5%, beating the Dow and the S&P 500 but not the Nasdaq, which has gained 3.8%.

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.

By Gene G. Marcial

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