Why CEC Entertainment Shares Jumped

Is this meaningful? Or just another movement?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
May 3, 2013 at 4:33PM
Consumer Goods

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chuck E. Cheese's operator CEC Entertainment (UNKNOWN:CEC.DL) soared 15% today after its quarterly results and guidance topped Wall Street expectations.

So what: The stock has slumped over the past couple of years on falling sales, but a wide first-quarter beat -- adjusted EPS of $1.90 on revenue of $255.3 million versus the consensus of $1.81 and $247.8 million -- coupled with upbeat guidance, suggests that things are starting to turn. In fact, comparable store sales increased 1.6% over the year-ago period, giving investors plenty of good vibes over management's new pricing and marketing initiatives going forward.

Now what: CEC now sees full-year 2013 EPS of $2.80-$2.95, nicely ahead of the average analyst estimate of $2.69. "We are fully committed to our strategic plan, and to returning capital to our shareholders as evidenced by our recently announced quarterly cash dividend of $0.24 per share and an additional authorization to repurchase $100 million under our stock repurchase plan," President and CEO Michael Magusiak said. Given CEC's still-hefty debt load and red-hot stock price, however, the risk/reward trade-off doesn't seem too appetizing at this point.

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