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Tickers in this Article: EAT, CEC, CBRL, BWLD, CMG
The restaurant industry appears to be able to stem top-line difficulties by slowing new store growth and focusing on controlling expenses. Moderating food inflation also helped stabilize gross margins. 2010 offers promise as economic conditions are projected to improve and should allow the industry to return to benefitting from a secular trend that also lost its way during the current downturn. Below are three companies that warrant further consideration. (For information on investing with restaurant stocks, read Sinking Your Teeth Into Restaurant Stocks.)

IN PICTURES: 20 Tools For Building Up Your Portfolio Brinker International (NYSE:EAT) operates and franchises Chili's, On the Border, Maggianos, and still has a small stake in Macaroni Grill, which was sold off to a private equity firm in late 2008. Chili's accounts for the vast majority of sales and has seen sales suffer as consumers eat at home and expansion prospects dim after years of growth. The company has responded by closing underperforming stores and selling off company-owned stores to franchisees. It recently reported 858 company-owned stores and 434 franchised locations.

CEC Entertainment (NYSE:CEC) owns the Chuck E. Cheese's restaurant concept and has also seen expansion prospects slow in recent years. Near-term results have also been hit by H1N1 fears as parents decided to keep their at-risk young kids at home. The company consists of approximately 550 locations, the majority of which remain company-owned.

Cracker Barrel (Nasdaq:CBRL) operates just under 600 Cracker Barrel Old Country Stores, which combine a restaurant and retailing concept along highways throughout the U.S. Sales have held up quite well as expansion prospects have faded and the company made a decision to focus on its namesake stores by selling off its Logan Roadhouse locations.

The Bottom Line
The above stocks currently stand out for their low valuations and the latter two are all currently trading at only 12 times earnings. This is somewhat below industry averages and significantly below faster-growing peers such as Buffalo Wild Wings (Nasdaq:BWLD) and Chipotle Mexican Grill (NYSE:CMG). So instead of top-line growth opportunities, which may still benefit as time-strapped consumers eventually return to eating out, these firms offer the potential for valuation expansion and the return of excess capital to shareholders in the form of dividends and share buybacks.

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