What happened
Shares of Bloomin' Brands (BLMN +1.43%) were defying market gravity today, surging 7.8% as of 11:44 AM EDT on an otherwise mediocre day for the markets.
The restaurant chain -- a parent to Outback Steakhouse and smaller-footprint concepts Carrabba's Italian Grill, Bonefish Grill, and Fleming's Prime Steakhouse & Wine Bar -- was the recipient of a large investment from activist investor Starboard Value.
A vote of confidence in the company's valuation and the potential for operational improvements from the seasoned restaurant investor was a tasty recipe for market gains. And shares still look rather cheap if the company and Starboard find a way to turn Bloomin's recent anemic foot traffic around.
NASDAQ: BLMN
Key Data Points
So what
Bloomin' had actually begun going higher earlier in the week as speculation around a large stock purchase by Morgan Stanley, which usually acts as a prime broker for hedge funds and Starboard, specifically, was made on Tuesday. So after Friday's confirmation of the investment, Bloomin's stock has had an even better week, with the stock up over 10% since Monday.
Starboard has taken a 9.9% stake in Bloomin', now worth close to $240 million. Starboard didn't release a statement, saying in the filing only that the investor thought shares were undervalued. And on the surface, that appears true. Bloomin's stock price trades at less than 10 times both this year's and next year's earnings estimates, even after this share price appreciation.
Of course, there is a reason for the pessimism. Growth has been anemic for the company, with last quarter's total company same-store sales growing by just 0.8% despite significant price increases to offset inflation.
Looking under the hood, traffic actually fell across every single restaurant concept for Bloomin', combining for a 4.2% traffic decline in the U.S. and a 4% decline in its international segment. The company also gave somewhat tepid guidance for a sequential decline in profits in the third quarter.
Now what
Can Starboard help rejuvenate traffic to Bloomin's brands? The activist does have a fairly successful track record with restaurant investments. In 2014, Starboard took a stake in Darden, the parent of Olive Garden. Starboard replaced the company's entire board of directors on the way to improving Darden's operations.
In 2019, Starboard took a stake in Papa John's as it aimed to recover from a scandal brought on by its founder. Starboard also succeeded in boosting the company's performance there, with the stock more than doubling over a four-year period.
So if Starboard's track record is any indication, there could be better times on the horizon for Bloomin' Brands' stock.
