Critical Survey: The Cheesecake Factory (CAKE) and Main Street Capital (NYSE:MAIN)

Main Street Capital (NYSE: MAIN) and The Cheesecake Factory (NASDAQ:CAKE) are both mid-cap finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their earnings, profitability, analyst recommendations, dividends, risk, valuation and institutional ownership.

Valuation & Earnings

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This table compares Main Street Capital and The Cheesecake Factory’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Main Street Capital $205.74 million 10.66 $170.62 million $2.39 15.62
The Cheesecake Factory $2.26 billion 1.02 $157.39 million $2.60 19.48



Main Street Capital has higher earnings, but lower revenue than The Cheesecake Factory. Main Street Capital is trading at a lower price-to-earnings ratio than The Cheesecake Factory, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Main Street Capital has a beta of 0.93, suggesting that its stock price is 7% less volatile than the S&P 500. Comparatively, The Cheesecake Factory has a beta of 0.29, suggesting that its stock price is 71% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations for Main Street Capital and The Cheesecake Factory, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Main Street Capital 1 3 2 0 2.17
The Cheesecake Factory 1 14 3 0 2.11

Main Street Capital presently has a consensus price target of $38.25, suggesting a potential upside of 2.44%. The Cheesecake Factory has a consensus price target of $48.06, suggesting a potential downside of 5.11%. Given Main Street Capital’s stronger consensus rating and higher possible upside, research analysts plainly believe Main Street Capital is more favorable than The Cheesecake Factory.

Profitability

This table compares Main Street Capital and The Cheesecake Factory’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Main Street Capital 82.93% 10.34% 6.17%
The Cheesecake Factory 6.96% 20.30% 9.65%

Dividends

Main Street Capital pays an annual dividend of $2.28 per share and has a dividend yield of 6.1%. The Cheesecake Factory pays an annual dividend of $1.16 per share and has a dividend yield of 2.3%. Main Street Capital pays out 95.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. The Cheesecake Factory pays out 44.6% of its earnings in the form of a dividend. Main Street Capital has raised its dividend for 7 consecutive years. Main Street Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

27.8% of Main Street Capital shares are owned by institutional investors. Comparatively, 97.6% of The Cheesecake Factory shares are owned by institutional investors. 5.3% of Main Street Capital shares are owned by company insiders. Comparatively, 8.4% of The Cheesecake Factory shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Summary

The Cheesecake Factory beats Main Street Capital on 9 of the 17 factors compared between the two stocks.

Main Street Capital Company Profile

Main Street Capital Corporation is a business development company specializing in long- term equity and debt investments in small and lower middle market companies. The firm focuses on investments in, subordinated loans, private equity, venture debt, mezzanine investments, mature, mid venture, industry consolidation, later stage, late venture, emerging growth, management buyouts, change of control transactions, ownership transitions, recapitalizations, strategic acquisitions, refinancing, business expansion capital, growth financings, family estate planning, and other growth initiatives primarily for later stage businesses. It invests in consumer discretionary, consumer staples, energy, healthcare, industrials, information technology, materials, telecommunication services, and utilities sectors. It does not seek to invest in start-up companies or companies with speculative business plans. It seeks to invest in traditional or basic businesses. The firm primarily invests in companies based in the Southern, South Central, and Southwestern regions of the United States but also considers other domestic investment opportunities. It typically invests between $2 million and $75 million in equity and $5 million to $50 million in debt, revenue between $10 million and $150 million, enterprise value between $3 million and $50 million, and EBITDA between $1 million and $20 million. The firm seeks to charge a fixed interest rate between 12 percent and 14 percent, payable in cash, in case of its mezzanine loan investments. The firm typically invests in the form of term debt with equity participation and/or direct equity investments. It prefers to maintain fully diluted minority and majority equity positions in its portfolio companies of 5 percent to 50 percent, and may have controlling interests in some instances. The firm also co-invests with other investment firms. It seeks to exit its debt investments through the repayment of the investment from internally generated cash flow and/or refinancing within a period of three to seven years. It participates in warrants, PIK (Payment in Kind) interest, convertible securities, junior secured or unsecured, senior secured debt, unitranche debt, equity related, common equity, and preferred equity. Main Street Capital Corporation was incorporated on March 9, 2007 and is based at Houston, Texas.

The Cheesecake Factory Company Profile

The Cheesecake Factory Incorporated operates restaurants in the United States. The company produces cheesecakes and other baked products for own restaurants and international licensees, as well as external foodservice operators, retailers, and distributors. As of February 28, 2018, it operated 214 company-owned restaurants, including 199 restaurants under The Cheesecake Factory brand; 13 restaurants under the Grand Lux Cafe brand; and 2 restaurants under the RockSugar Southeast Asian Kitchen brand, as well as 20 The Cheesecake Factory branded restaurants under licensing agreements internationally. The company was founded in 1972 and is headquartered in Calabasas, California.

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