Why Cheesecake Factory (CAKE) Might be Well Poised for a Surge

Cheesecake Factory (CAKE) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.

Analysts' growing optimism on the earnings prospects of this restaurant chain is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Cheesecake Factory, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.85 per share, which is a change of +25.0% from the year-ago reported number.

Over the last 30 days, seven estimates have moved higher for Cheesecake Factory compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 19.12%.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $4.35 per share, representing a year-over-year change of +15.4%.

The revisions trend for the current year also appears quite promising for Cheesecake Factory, with eight estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 9.31%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Cheesecake Factory currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Cheesecake Factory shares have added 28% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.

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This article originally published on Zacks Investment Research (zacks.com).

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