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Can California Pizza Kitchen Cook?

Posted: Jan 20, 2009 10:38 AM by Glenn Curtis

Tickers in this Article: PZZA, DPZ, YUM, CPKI

Americans love to eat. And when it comes to our favorite foods, pizza is probably right near the top of the list. And why not? It's quick, it's relatively easy and cheap to make or buy, and it tastes great.

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In any case, when it comes to publicly traded companies that are up to their elbows in pizza, a couple typically come to mind: Yum! Brands (NYSE:YUM), which has Pizza Hut under its umbrella, Domino's Pizza (NYSE:DPZ) and Papa John's (Nasdaq:PZZA).

But what about California Pizza Kitchen (Nasdaq:CPKI)? For some reason, that's not on the tip of most investors' tongues, but I think it deserves a mention. The Golden-State based California Pizza Kitchen is a casual dining player known for its pizza, pasta and other fare. The company comes to mind as a leader among its competitors because this past week, it offered up tantalizing preliminary Q4 numbers.

A Taste of What's to Come
Excluding charges, the company indicated that it's looking for preliminary earnings of 8 to 10 cents per share in the fourth quarter. This is good news because it had previously served up guidance of 6 to 9 cents. (Explore the controversies surrounding companies commenting on their forward looking expectations in Can Earnings Guidance Accurately Predict The Future?)

The new preliminary numbers aren't earth-shattering, but in this market, investors should take note of every bit of good news they can get. In addition, analysts had pinned the company at 7 cents per share.

Let's take a look at some of the other promising fare this company serves up for investors.

Quality Toppings
The California Pizza Kitchen company has been around since 1985. More than 20 years in the food business is something to be proud of, particularly given the competitive environment and effort its had to go through to make it to this point.

And it isn't some little hole-in-the-wall restaurant chain. According to the company' preliminary Q4 earnings release, "as of January 14, 2009, the company operates, licenses or franchises 252 locations, of which 204 are company-owned and 48 operate under franchise or license agreements. The company also has a licensing agreement with Kraft Pizza Company, which manufactures and distributes a line of California Pizza Kitchen premium frozen pizzas."

The company is also expected to generate more than $600 million in revenue in the current year. That's less than Domino's, which is expected to generate more than $1.4 billion in revenue in the current year, and Papa John's, which is expected to generate in excess of $1.1 billion on its revenue line in the current year. Nevertheless, CPKI's size and footprint is big enough to help it weather this economic storm.

Then there's its earnings. At present, the company is expected to put up 64 cents per share in the current year and 59 cents per share next year. Given the current economic environment, this is not surprising. However, for a stock that currently trades at $9.67, I would argue that the estimates are not too shabby.

Taking this one step further, CPKI trades at about 15.1 times the current year estimate, and it's expected to grow in the next five years (per annum) at just over 16%.

Secret Recipe for Success
According to insider data, Director Marshall S. Geller bought a total of 10,000 shares late in the year (5,000 at $5.46 per share, and 5,000 at $6.46 per share). This should catch investors' attention, as he likely wouldn't have put in the dough if he didn't believe the company had the right ingredients to bake up success.

The Bottom Line
I'm a big fan of the casual dining space for the long haul and I love my pizza. California Pizza Kitchen has earned a spot on my radar screen. I plan on keeping a close eye on the company because if the economy perks up, I think the shares have the potential to really cook.

Learn to put your money where your mouth is in Sinking Your Teeth Into Restaurant Stocks.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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