This Week in Food and Restaurants
by Aristotle Munarriz (TMF Edible)

Miami, FL. (May 23, 1997) -- Remember Snapple, the new age beverage company which once ran an ad campaign touting how it wanted to be #3 but eventually stunk like #2 to QUAKER OATS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OAT)") else Response.Write("(NYSE: OAT)") end if %>? Yesterday the company finalized their March announced sale of the division to TRIARC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRY)") else Response.Write("(NYSE: TRY)") end if %>. The fact that Arby's and Mistic brand owner Triarc stole Snapple for $300 million while Quaker had originally paid up $1.7 million a few years earlier is old news. What is new is that now that the deal is complete Triarc has announced that they will not be spinning off its beverage and fast food divisions.

With good reason too. The stock has more doubled since late last year as investors are once again getting excited over the company that not only bottles RC Cola but also dabbles in non-digestible sectors like fabric dyes and petroleum. The food and beverage division is by far the company's largest and its annual sales base will double with the Snapple division's $550 million in annual sales last year.

The company had originally planned to spin-off a 20% stake in their food and beverage business to increase shareholder value. Well, that happened on its own, so, ixnay.

THE EDIBLE EIGHT

LONE STAR STEAKHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STAR)") else Response.Write("(Nasdaq: STAR)") end if %> was all over the map this week. On Monday the stock was trading as low as $18 after rumors began to circulate that the current quarter will show no improvement over the 5.1% same store sales decline reported in the previous quarter. In a conference call the company confirmed that comps were down for the current quarter, but in the 3.6% range. Lone Star did say it was still comfortable with the $2.05 earnings estimate for the year. The stock inched its way back to close out the week at $20 7/8, off just an eighth. The company held its annual meeting earlier today.

Even a recall of Minute Maid's Verry Berry Punch didn't slow down our one short, COCA COLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %>. The limited recall was actually quite serious because it was believed some of the product may have been tainted with cleaning solution. With the stock at $68 1/8 and trading at 45 times trailing earnings it seems Wall Street took a swig of the punch and had its brain washed.

There is nothing at all wrong with the purveryors of Coke. The company is the best example of genius and the dominance of corporate America. By peddling syrup and image, and not necessarily in that order, few will argue that one of the nicest sounds one can hear is the fizz of a Diet Coke being poured into a waiting glass.

But this is not a game of teacher's pet. This is the reality of valuation. Analysts think Coke can grow earnings at 18% a year. I disagree. I think it will be lower but let's use their figures. PEG analysis would have the company trading at fair value when it's growth rate would equal its P/E ratio. At $68 1/8, where it sits on this Memorial Day Weekend as millions will no doubt head to thei beach with coolers full of the red and white cans, when will they earn enough to justify a P/E of 18? Next year? Nope. The $1.93 forecast is still a lofty 35 times earnings. 18% earnings growth in 1999 finds earnings at $2.28 and still a nosebleed 30 times earnings. It won't be until early 2003 when the stock at $68 1/8 will justify a P/E of 18.

Of course, Coke has intangibles. Even I think the stock may be a little higher six years from now, but not much higher. So, if your options are to park the money under your pillow until January 2003 or buy KO, then it's a tough call but picking up some shares of Coke will probably prevail. But, for now, it's a fizzy-valued blue-chip, and those who are buying in this volatile market expecting it to be a flight to quality may be shocked that the stocks they are selling to buy KO probably have much higher growth rates and much lower P/E ratios.

Of course, E8 has other things to worry about. This month has found the portfolio singing the tune of "A Tale of Two Cities" with the best of times and the worst of times. LOGAN'S ROADHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDHS)") else Response.Write("(Nasdaq: RDHS)") end if %> is up a healthy 53% while QUALITY DINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %> is bringing up the rear with a 30% May dive. Logan's run (sci-fi movie reference intended) has been simply amazing and if it holds up next week will be the best performing E8 stock over any given month. The old record belongs to COUNTRY STAR RESTAURANTS PREF <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAFEP)") else Response.Write("(Nasdaq: CAFEP)") end if %> which rose 47% in January of 1996. Thankfully Quality Dining still has some way to go before topping the July, 1996, performance of DAKA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DKAI)") else Response.Write("(Nasdaq: DKAI)") end if %> which fell 47%. To Daka's credit the stock soared 38% the following month. A Quality repeat? Stay tuned.

1997 Returns To Date:
The Edible Eight      +1.3%
NASDAQ                +7.6%
S&P 500                +14.3%
Fidelity Sel:Food      +5.8%
IBD: Restaurants      -6.4% (as of Tuesday)

The May Edible Eight

Stock Appreciation for May-to-Date:
Rainforest Cafe <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %>        +0.0%
Lone Star Steakhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STAR)") else Response.Write("(Nasdaq: STAR)") end if %>   +5.7%
Bertucci's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BERT)") else Response.Write("(Nasdaq: BERT)") end if %>             +8.0%
Quality Dining <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %>        -30.0%
Coca Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> ***short***      -6.6%
Garden Fresh <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTUS)") else Response.Write("(Nasdaq: LTUS)") end if %>           -6.5%
Grist Mill <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRST)") else Response.Write("(Nasdaq: GRST)") end if %>             +9.6%
Logan's Roadhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDHS)") else Response.Write("(Nasdaq: RDHS)") end if %>     +53.1%

Until next week, Digest Foolishly,
MF Edible

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