Like a T-bone steak caught in the jaws of two rival dogs, RARE Hospitality (Nasdaq: RARE ) could go either way at this point. Last night's fourth-quarter report found the company hosing down its guidance for the current quarter. On the upside, the casual dining steakhouse chain is toiling away in a sector in which its two largest competitors have been recently acquired.
Let's start with the short end of that T-bone. RARE's quarter wasn't all that bad. After coming up short against analyst estimates in its two most recent quarters, RARE bounced back to lap the pros. The company earned $0.46 a share from continuing operations, and revenues inched 17% higher to hit $259.9 million. Comps rose at its flagship LongHorn eateries and its upscale Capital Grille locations alike, with respective gains of 1.5% and 8.4%.
The problem with the report came in the restaurateur's grim near-term outlook. RARE sees comps growth in the current quarter clocking in lower than it did in the quarter just past. RARE had originally led investors to project profits per share between $0.50 and $0.52, but it's now reducing that range to $0.46 to $0.49. This is a problem, because RARE earned $0.48 a share. Where's the growth beef?
RARE expects to bounce back after a flat start. It sees earnings per share for all of 2007 climbing 12% to 16% higher. Unfortunately, Wall Street had its heart set on 25% bottom-line growth this year.
The stock dipped on the report last night, and that's understandable. However, let's dig into the meatier part of that steak. Outback Steakhouse parent OSI (NYSE: OSI ) has recently agreed to be acquired. A deal to take Lone Star Steakhouse private also recently closed. On the higher end, upscale chain Smith & Wollensky (Nasdaq: SWRG ) is weighing an unsolicited buyout offer.
This doesn't mean that RARE is on the block, but the wave of buyouts indicates that there is private equity demand for successful concepts, and RARE would seem to fit the bill in that regard. Now trading for less than 20 times forward earnings, the stock wouldn't have to tick too much lower before drooling, acquisitive suitors heeded the dinner bell. That multiple is comparable to what Morton's (NYSE: MRT ) is fetching, and a bit less than what Ruth's Chris (Nasdaq: RUTH ) and Texas Roadhouse (Nasdaq: TXRH ) are going for these days.
There are two sides to this T-bone, and both of them are meaty.
For more on great steaks, check out:
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Longtime Fool contributor Rick Munarriz enjoys a good roadhouse every now and then. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the
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