Bloomin' Brands Shares Boosted By Hedge Funds, But Is The Stock Still A Buy?

Bloomin’ Brands Inc (NASDAQ: BLMN) caught the eye of Jana Partners — the activist investor renowned for pressuring Whole Foods Market’s sale to Amazon.com, Inc. (NASDAQ: AMZN).

But Jana’s 8.7-percent stake and expressed intent to push strategic alternatives haven't inspire universal confidence in Bloomin’ Brands’ trajectory.

The Rating

Bank of America Merrill Lynch analyst Gregory Francfort downgraded the stock to Neutral and lowered the price target to $21.

The Thesis

Jana’s proposal for a sale, portfolio breakup or management change compounds the yet-undetermined demands of Barington Capital, which also announced a recent stake in Bloomin' Brands, Francfort said. (See Francfort's track record here.) 

Merrill Lynch expects the activists to target margin structure and general and administrative expenses.

“The upside risk of a more aggressive cost focus drives our Neutral rating,” Francfort said in a Wednesday note.

The analyst expressed additional concern about 4 percent labor inflation and a waning commodity tailwind, which are together seen to limit Bloomin’ Brands’ 2018 bottom line.

Price Change

After rocketing 16 percent off Jana’s 13-F filing, Bloomin’ Brands fell 2.5 percent on the downgrade to $20.30.

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