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Cheesecake Factory stock downgraded to Sell by UBS

UBS downgraded shares of Cheesecake Factory (CAKE) on Tuesday from Neutral to Sell.

In a note to investors, analyst Dennis Geiger said he expects store sales to slow down for the fast-casual chain and for higher food and labor costs to take a toll on the company's bottom line. Cheesecake Factory aims to return to pre-COVID margins of roughly 15.7%, but right now, UBS is modeling CAKE's profit to fall slightly short of that at 14.1% in 2023.

Customer loyalty could help boost sales, but other factors will likely outweigh it, Geiger said.

"While CAKE could continue to benefit from customer brand affinity and earnings upside potential exists if targets are reached, we think potential pressured industry demand, ongoing cost headwinds and limited macro visibility highlight risk to the recent move higher in shares and expectations," he explained.

While 2022 saw consumers eager to dine out, Geiger predicts this year there will prove a "difficult macro and more pressured spending environment [that] could result in some slowing in sales trends."

The firm expects full-year revenue to come in at "the low end of the targeted $3.5 billion to 3.6 billion range" with consumers likely to be deterred from higher menu costs. He noted the chain is pricier than the competition, with an "elevated ticket relative to peers ($27 vs. peer avg. $24)."

He is also keeping an eye on Cheesecake Factory's plans to meet ~7% store growth in 2023. He noted that ongoing permit and construction delays and higher construction costs pose a potential risk to its plans.

Last week, Citi downgraded shares of the The Cheesecake Factory from a Buy to Neutral. Despite both these downgrades from Wall Street, shares are up 19% year-to-date.

The refrigerated display case at the Cheesecake Factory at Coastland Center Shopping Mall. (Photo by: Jeffrey Greenberg/Universal Images Group via Getty Images)
The refrigerated display case at the Cheesecake Factory at Coastland Center Shopping Mall. (Photo by: Jeffrey Greenberg/Universal Images Group via Getty Images)

Shares of Cheesecake Factory on Tuesday were reached more than $38. UBS's price target remained unchanged at $30.00 per share. The California-based company is expected to post Q4 earnings on February 15th, 2023.

As of Tuesday, the Street has 3 buys, 9 holds and 4 sells on shares of Cheesecake Factory.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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