Morton's Slices Into Its Stock (Fool Plate Special) November 19, 1999

An Investment Opinion

Morton's Slices Into Its Stock

By Dave Marino-Nachison (TMF Braden)
November 19, 1999

Is it time for investors to start stocking up on meat and potatoes? Morton's Restaurant Group (NYSE: MRG) thinks so, the operator of the upscale Morton's of Chicago beef temple chain announcing plans to nibble on its outstanding share count.

Morton's last night said it extended its stock buyback program by 600,000 shares via either open market, block, or private transactions. That's an extension of a program begun in October 1998; the company authorized the purchase of approximately 1.3 million shares, 1.2 million of which have since been bought back. Morton's had just under 5.8 million shares outstanding as of Oct. 3.

Should investors take this as a sign that it's time to take a closer look at Morton's shares along with its menu of sea scallops wrapped in bacon, porterhouse steaks, and asparagus in hollandaise sauce?

On a simple share-price level, the company's stock is near the sub-$15 levels it visited briefly when Morton's announced its last buyback. Operationally, the company seems to be running smoothly, having met earnings expectations all year. (With a midsized, steadily growing chain like Morton's, large upside surprises aren't likely.)

Through the first three quarters of the year, Morton's revenues are up 9.7% with operating margins holding fast. Same-restaurant sales are up 3.6% so far this year thanks in large part to a 7.6% jump in the third quarter. There were 45 Morton's restaurants as of third quarter's end, Chairman and CEO Allen Bernstein saying the chain will number 50 by year's end -- including one in a ritzy district of Hong Kong.

And now Morton's is heading into the holiday season, always its biggest, with the added attraction of the year 2000 seeming likely to power a near-term fine-dining boom. However, the magnitude of this boom may affect the price and supply of top-quality beef. If there's a potential for weakness in holiday-season results for companies like Morton's, it might be just that.

Meanwhile, the company is consistently trimming its Bertolini's northern Italian-themed restaurants, which have disappointed -- same-restaurant sales at the eight-store chain were off 5.3% for the third quarter and 5.7% for the year. Bernstein said to expect at least four more closings at Bertolini's, which he believes will help operating results in the future.

While some of the shine that carried steakhouse stocks up through about mid-1998 has apparently dulled from overeating, there's still considerable interest in the upscale model Morton's favors. Many expect a public offering from Louisiana's 60-store Ruth's Chris chain, which has sat at table with the Outback Steakhouse (Nasdaq: OSSI) people but left unsated with the size of the bill apparently a sticking point. Outback instead may decide to go into the top-tier beef biz for itself.

And investors may want to consider similar options. It's a heavy meal, but at these prices -- Morton's currently trades at about eight times projected full-year 1999 earnings -- it could be worth sidling up to the table and loosening the belt.

Related Links:
Morton's Web Page
Morton's Message Board
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