Will Cracker Barrel stock sustain its recent rally?

By Mihir Dalal and Ramya Dilip

BANGALORE (Reuters) - Shares of Cracker Barrel Old Country Store (CBRL.O) have surged 82 percent since the restaurant chain said in late February that it planned to sell and leaseback 15 stores and its retail distribution center to repay debt.

However, the family-dining restaurant operator, which has long-term debt of $770 million, said last week it expected lower proceeds from the deals at about $53 million to $54 million.

The Lebanon, Tennessee-based chain, which has most of its locations near interstate highways, has also said it expects comparable-store restaurant sales to continue to fall as consumers cut back on travel and eating out.

Can the stock continue its rally or should investors opt out?

FULLY VALUED

"Long-term, the sale-leaseback transaction is dilutive to earnings and cash-flow, even though it prevents any debt covenant issues," Raymond James' Bryan Elliott said.

Elliott, who rates the stock "underperform," said the stock was fully priced at current levels on a cash-flow basis.

"Cracker Barrel is a mature company with a lot of debt, and it's not growing so, cash-flow valuation metrics are more important," he said.

REASON TO HOLD

Even though shares are fully valued, Cracker Barrel "has potential to expand margins and cash-flow once things start getting better," said Keybanc Capital Markets analyst Brad Ludington, who has a "hold" rating on the stock.

While the sale-leaseback deal price is "reasonably good," Ludington said "the concern is, as they go through the process, whether the market will decline even further and bring the proceeds down even more."

The 15 stores the company was planning to sell were newer, "and probably more premium properties than the rest of their store-base," he added.

MORE ROOM TO GROW

Morgan Keegan analyst Robert Derrington said the deal value indicates Cracker Barrel's real estate is potentially worth about $1 billion to $1.5 billion, which "supports valuation for the shares far beyond just the operating value of the enterprise."

Derrington, who has an "outperform" rating on the stock, projected a 12-month fair value for the stock in the high-$30's. The stock closed at $32.74 Tuesday on Nasdaq. Though consumers have cut back on overall travel, the analyst said Cracker Barrel is likely to benefit from more Americans choosing road travel over flying this year.