Shares of The Cheesecake Factory Incorporated (CAKE) moved sharply higher in pre-market hours but gave up some of those gains at the open, after Roark Capital purchased $200 million worth of convertible preferred stock. The transaction significantly improves the restaurant chain's liquidity position amid the ongoing COVID-19 crisis and adds one new independent board member.
During the first quarter, The Cheesecake Factory reported a 13% decrease in comparable restaurant sales. The comparable sales were up 3% in February before a 46% slide during March as stores shut down. The company recently furloughed 41,000 employees in an effort to cut down on costs while drawing down a $90 million line of credit to increase its liquidity.
Politicians have suggested that stay-at-home orders could be lifted within weeks, while analysts have been confident in the Cheesecake Factory's long-term potential. For example, Guggenheim analysts recently reiterated their Buy rating and raised their price target to $30 per share. The company also has a longstanding off-premise channel with strong sales.
From a technical standpoint, The Cheesecake Factory stock moved higher to retest trendline resistance near $21.50. The relative strength index (RSI) remains neutral with a reading of 47.76, while the moving average convergence divergence (MACD) remains in a bullish uptrend. These indicators suggest that the stock has more room to run on a technical level.
Traders should watch for a breakout from trendline resistance toward the 50-day moving average at $26.56 over the coming sessions. If the stock fails to break out, it could remain in its trading range with a lower bound near $15.00 per share. Most of the price action will likely be dictated by the overall market sentiment surrounding the restaurant sector.
The author holds no position in the stock(s) mentioned except through passively managed index funds.