Carving Up Morton's

The next upscale steakhouse to go public is a name that meat lovers with deep pockets probably know all too well. Morton's Restaurant Group (NYSE:MRT) -- the parent company of 69 Morton's of Chicago units and the smaller 4-unit Bertolini's concept -- has set a range between $14 and $16 a share for its IPO. With just over 16 million shares outstanding, the deal values the company at roughly $250 million.

Chasing the swanky chophouses hasn't really paid off in the past for restaurant investors. Ruth's Chris Steak House (NASDAQ:RUTH) is barely trading over its IPO price from last year, while Smith & Wollensky (NASDAQ:SWRG) has been a single-digit disaster. Shares of casual steakhouse chains with upscale concepts -- like Outback (NYSE:OSI) with Fleming's, RARE Hospitality (NASDAQ:RARE) with Capital Grille, and Lone Star (NASDAQ:STAR) with Sullivan's and Del Frisco's -- have fared better with retail investors in the past.

This would be Morton's second time as a publicly traded company; it traded under the ticker symbol MRG for years until it was taken private in 2002.

This may not be the best time for Morton's to go public. It lost money in 2004, and it was in the red through the first nine months of last year. This isn't exactly a high-octane growth story; high-end steakhouses have a limited audience clamoring to pay $85 for a 48-ounce porterhouse before digging into the a la carte side dishes. In other words, Morton's may not be able to grow much past its existing base, domestically, before it starts to cannibalize sales.

That's why sales growth has been pretty unimpressive at Morton's. Sales rose by less than 7% last year to $293.8 million, after climbing just 9% higher in 2004. Most of the money being raised in the IPO will go to pay down debt, not necessarily to expand at the frenetic pace of younger public eateries.

Then again, that's also why the company is going public at a rather modest 0.8 times trailing sales. Cheap? Well, it all depends on how one defines cheap. Let's take a look at the trailing top-line multiples of publicly traded steakhouse operators.

As a slow grower with sloppy financials, Morton's doesn't seem like that much of a bargain anymore. The stocks with higher multiples are growing more quickly and have been consistently profitable. It will be critical for the company to shape up operations enough to widen margins and grow comps (same-unit sales rose a mere 2.5% in 2005). If not, look up Smith & Wollensky for starters -- but not for dessert.

Longtime Fool contributor Rick Munarriz isn't a chophouse snob, though he did have dinner at Morton's over the weekend -- but only because Fleming's was booked solid. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.