Bloomin' Brands (NASDAQ: BLMN) Is A Speculative Buy At Best

Great Company, Hard Times

This is one of those stocks I hate to write about because I love the company but don’t think the stock is much of a buy. Bloomin' Brands (NASDAQ: BLMN) is the parent to Outback Steakhouse, Carrabba’s, and Bonefish Grill, three brands that rely on packed houses and high-volume traffic to drive its meager 15% margins. At the beginning of the year, the company began to rethink its operations including refocusing on growth and streamlining management and that was a good thing. Part of the process included realigning capital allocation with shareholders in mind and that resulted in a doubling of the dividend.

The bad news is that, given the pandemically-restricted business environment, is that many of those efforts have been suspended. Notably, Bloomin' halted the potential sale of assets in Brazil, drew down 100% of its credit facilities for “just in case” and suspended the dividend outright. Even with today’s semi-impressive earnings release, it is unlikely the company is going to reinstate a dividend anytime soon which is why I can only rate it a speculative buy at best. There are signs the company will be able to weather the storm and even come out better than before but it will be at greatly reduced capacity.

Better Than Expected Only Goes So Far

The second-quarter results are better than expected but that only goes so far. Bottom-line results beat consensus by by a fair margin but still came in negative and the outlook for the year is not positive. Revenue of 578.46 million fell more than 43% on a YOY basis and missed by 200 basis points. The U.S. comps, the bulk of the business, fell -39.4% and also missed consensus but by a smaller 80 basis point margin.

The real positive within the report, the tidbit that makes me believe that Bloomin' Brands can survive, is the margin. Margins were expected to come in negative but off-premise sales and the company’s nimble response to the pandemic helped offset the fall in business. Margins for the quarter came in at only 2.7% versus the YOY comparison of 15% but it’s a positive number and that’s what counts. Regarding off-premise sales (my wife and I use the Carraba’s pick-up lane frequently) sales tripled. Tripled. That’s a big jump and shows how loyal the company’s following can be.

If the company can continue to build on the base it has established since March margins should rise and profits should resume, if not by the end of the year then sometime next. The long-term outlook is better but still negative when compared to the pre-COVID business. The 2021 consensus for EPS and revenue is running solidly negative and not expected to change without some kind of COVID treatment, preventative, or vaccine to assure consumers of their health.

The Technical Outlook: This Stock Might Be A Buy, But I’m Not InterestedOn a technical basis, this stock looks like it could be a good buy … for short term traders. Today’s news has the price action up more than 5% in early trading and the indicators are in support. The caveat is that without a dividend or clear indication of profitability/return to growth I just don’t see it escaping the post-correction trading range. There are significant points of resistance at the $12 and $14 levels that, for me, look like great places to get out or go short.

Regarding the indicators, both indicators are showing bullish signs but there are caveats. The first is that stochastic is high in its range and not exactly showing strength. The second is the MACD. The MACD is bullish but very weak and also not inspiring of confidence. In both cases, I see hints if not clear indications that there are buyers waiting to sell when prices hit resistance points. I could be wrong, both about the company’s rebound and the market, but I don’t think so. There are just too many other high-yielding opportunities to waste much time with this.