The New York Times reports that Americans in the economic middle are eating pasta instead of meat and staying at Hampton's Inn instead of Hilton as they try to keep their families together in the face of flat income and skyrocketing costs. As a result, some companies are suffering and others are benefiting. Let's look at two that are benefiting and 10 that are hurting:
Here are two companies that are doing better thanks to their lower prices:
'Tis the season to shop for just the right gift card. While gift cards may be a good deal for consumer recipients, depending upon state laws and company policies, gift cards may have a short-term downside for investors. As gift card giving becomes more popular, the liability problem of what to do about unredeemed gift cards grows as well. In some states, the value of an unused or partially used gift card must be turned over to the state as unclaimed property. The value of the gift card stays on the company's books as a liability. According to a recent article in CFO Magazine, 27% of all gift cards go unused, and perhaps as many as 50% are used only partially.
In states that do not have unclaimed property laws that apply to gift cards, companies must develop their own policies as to when an unused gift card can be moved over to operating income on the balance sheet. This transfer is called "breakage." There is currently no SEC regulation on breakage, so investors need to scan company balance sheets to determine the amount of rbeakage, which can be large. Ruth's Chris Steak House (NASDAQ: RUTH) claimed $2.2 million in breakage as operating income, dwarfed by the $39 million in breakage Best Buy (NYSE: BBY) transferred by analyzing historical patterns of gift card usage. Best Buy determined that after two years, an unused gift card is likely never to be used and can come off the liability side of the equation. Ben Bridge Jeweler, owned by Berkshire Hathaway (NYSE: BRK.A), has little problem with breakage. Most of its customers are only too happy to use their high value gift cards very promptly.
If you're going to invest in the food service sector, fine dining is a good place to look. As baby boomers age, they are hitting their prime earning years, which, when combined with their increased disposable income as their children move out of the house, means that there are 78 million potential customers in America with the money and the leisure time to spend on fine dining. But food service can be a tricky industry. There's a high rate of failure, and a lot of a company's worth is derived from the cachet attached to the brand name. That said, every once in a while you find a company that manages to have an organization that is strong enough to ride out these risks and provide some real money making potential. Ruth's Chris Steak House, Inc. (NASDAQ: RUTH), the leading upscale steakhouse chain in the U.S., is one of those companies.
With more than 100 restaurants scattered around the country, Ruth's Chris has the diversification to ride out any localized failures, which are more often than not caused by changes in the economic environment in a restaurant's community. And the company plans to keep expanding, with hopes that the chain could eventually run to over 250 restaurants in the U.S. alone.
There's also potential for international growth; there are already 10 Ruth's Chris restaurants around the world, in markets as diverse as Hong Kong and Taiwan, with tentative plans in the works for up to 50 more in the future, starting with the recently announced plans for a Tokyo outpost. And all of this expansion seems to be paying off -- Ruth's Chris reported revenue up 20% last quarter.
MOST NOTEWORTHY: Catalyst Pharm, Ruth's Chris Steak House and Dynegy were today's noteworthy initiations:
Rodman & Renshaw is optimistic on Catalyst Pharmaceutical Partners' (NASDAQ: CPRX) Vigabatrin in drug addiction, initiating shares with a Market Outperform rating and $9 target.
SunTrust started Ruth's Chris Steak House (NASDAQ: RUTH) with a Neutral rating and $13 target, citing the difficult spending environment and cautious sentiment.
Jefferies initiated shares of Dynegy Inc. (NYSE: DYN) with a Buy rating and $9 target and expects improved cash flow and earnings from the projected improvement in market heat rates in the Midwest and PJM.
OTHER INITIATIONS:
Bear Stearns resumed coverage of Siemens AG (NYSE: SI) with an Outperform rating.
Wachovia initiated the pharmaceutical services sector with an Overweight rating and started Covance Inc. (NYSE: CVD), Icon plc (NASDAQ: ICLR) and Kendle International (NASDAQ: KNDL) with Outperform ratings.
MOST NOTEWORTHY: Blackboard, Ruth's Chris Steak House, Texas Roadhouse, China Digital and Main Street were today's noteworthy initiations:
Suntrust initiated shares of Blackboard (NASDAQ:BBBB) with a Neutral rating, as they sees risk to 2008 Street estimates due to minimal margin expansion.
Deutsche Bank started shares of Ruth's Chris Steak House (NASDAQ:RUTH) with a Hold rating, as they find it difficult to recommend a high-end dining chain in this economic environment.
The firm also initiated Texas Roadhouse (NASDAQ:TXRH) with a Buy rating and $15 target, citing the company's solid balance sheet, consistent operating history and low valuation.
Piper expects shares of China Digital (NYSE:STV) will move higher as investors recognize the growth potential of the conditional access card market in China. The firm started shares off with a Buy rating and $43 target.
Morgan Keegan resumed coverage of Main Street (NASDAQ:MAIN) with an Outperform rating and sees fair value range $15.50 to $17.00 based on MAIN's current yield of 9.2%.
MOST NOTEWORTHY: The auto and auto parts sector, Marvell Technology and FMC Technologies were today's noteworthy initiations:
Citigroup initiated the auto and auto parts sector, and believes strong international growth provides selective opportunities. They upgraded General Motors Corporation (NYSE: GM) to Buy from Sell and Lear Corporation (NYSE: LEA) to Buy from Hold.
Marvell Technology Group (NASDAQ: MRVL) was initiated with a Neutral rating by Bank of America, which believes the company's earnings power will be limited in FY09.
FMC Technologies (NYSE: FTI) was assumed with an Overweight by JP Morgan, which believes that subsea development offers one of the best opportunities in the energy sector.
MOST NOTEWORTHY: Ruth's Chris Steak House (RUTH), Hilton Hotels (HLT) and Champps Entertainment (CMPP) were today's noteworthy downgrades:
Goldman cut shares of Ruth's Chris Steak House (NASDAQ: RUTH) to Sell from Neutral following the company's preliminary Q2 sales, as they expect relative underperformance over the near-term. Goldman believes macro headwinds could weigh on Ruth's client base and keep traffic negative for the rest of the year.
Hilton Hotels (NYSE: HLT) was downgraded by a number of firms after the Blackstone Group (BX) takeout offer: Jefferies and Citigroup cut shares to Hold from Buy, Calyon downgraded shares to Neutral from Buy, Raymond James downgraded shares to Market Perform from Strong Buy, Suquehanna cut shares to Neutral from Positive and Bear Stearns downgraded Hilton Hotels to Peer Perform from Outperform.
B. Riley downgraded shares of Champps Entertainment (NASDAQ: CMPP) to Neutral from Buy to reflect the buyout offer from F&H Acquisition Corp...
OTHER DOWNGRADES:
B. Riley downgraded shares of ACR Group (AMEX: BRR) to reflect the company's merger agreement with Watsco Inc (WSO).
MOST NOTEWORTHY: Best Buy Co, Inc (BBY), Amazon.com, Inc (AMZN), aQuantive, Inc (AQNT) and AT&T (T) were today's most notable upgrades:
Goldman upgraded shares of Best Buy (NYSE: BBY) to Buy from Neutral, telling customers valuation is discounting an earnings miss and reflects concerns about the company's capital allocation. The firm expects BBY to meet recent guidance and current Street estimates.
Deutsche bank upgraded shares of Amazon.com (NASDAQ: AMZN) to Buy from Hold, citing expectations for operating margin improvement near-term and added growth and margin expansion longer-term from Web Services initiatives.
JP Morgan upgraded shares of aQuantive (NASDAQ: AQNT) to Outperform from Neutral, citing valuation and stronger fundamentals as the firm expects Google's (GOOG) acquisition of DoubleClick to result in stable pricing during the integration process. aQuantive was also upgraded to Buy from Neutral at UBSW and to Sector Outperformer from Sector Performer at CIBC.
AT&T Inc (NYSE: T) was upgraded to Outperform from Sector Perform at RBC Capital, as the firm believes shares have stronger growth prospects compared to the group based on wirelines cost cutting, churn and margin improvements at Cingular.
Unlike many restaurant businesses, Ruth's Chris Steak House (NASDAQ: RUTH) posted positive numbers for 1Q 2007. Announcing preliminary earnings, the Ruth's Chris Steak House chain stated company-owned restaurants posted a sales increase of 1.9%. This marked the 16th consecutive quarter of sales growth. Sales volume at company-owned locations was up 1.4%, with an average weekly volume of $118,574. The average check increased 5.2% due partly to higher beef entree prices.
Total company-owned sales increased 27%, from $61.5 million in 1Q 2006 to $78.1 million in 1Q 2007. Total revenue from continuing operations, including franchise income, for 1Q 2207 is in the $81.3-$81.5 million range, compared with $64.7 million in 1Q 2006. Management estimates that FY 2007 diluted EPS will be $1.05-$1.09. Ruth's Chris Steak House currently operates 105 locations throughout the United States. It opened 10 locations in 1Q 2007 and plans to open several more company-owned locations, as well as several more franchise locations during the remainder of 2007.
On Friday, 13 April, the stock closed at $19.80, up $0.30.
Times are tight, and one of the first ways people cut back on expenses is by eating at home more often. So out the window goes the family night at TGIF or Olive Garden. But when it comes to celebrating Mom's promotion or Dad's birthday, folks are still willing to pull out the credit card and go somewhere special. Ruth's Chris Steak House, Inc. (NASDAQ: RUTH) is one of these places. It has a solidly established brand as an upscale, special dining experience -- an experience carefully maintained at each of its nearly 100 restaurants in more than 25 cities. And there's more to come. It has a planned growth rate of 14 restaurants a year. It has been cited in many magazines and other media as a "Best Steakhouse," and the magazine Wine Spectator has awarded many of its restaurants accolades of excellence, merely adding to its tony image.
Other steak houses tend to cater to business clientele, and suffer as a result in recessionary times when companies cut back on employee expense accounts. Ruth's Chris smartly has appealed to women, who make up 40% of its guests. But less than one third of Ruth's Chris customers are business clientele, pointing to its ability to survive when economic conditions are rough.
From 2001 to 2005, Ruth's Chris' operating margin averaged 10.6% and has now jumped up to 12.0% as it grows and achieves greater economies of scale.
Type of stock: A chain of steakhouses, Ruth's Chris has established itself as the place people go for a special occasion meal, allowing it to survive even when the economy takes a dip. Price target: Currently trading in the $19 range, I see this share bouncing past analysts' expectations and hitting $27 in the next year. The revenues -- and its operating margins -- are growing, and the brand is solid.
If you're going to invest in the food service sector, fine dining is a good place to look. As baby boomers age, they are hitting their prime earning years, which, when combined with their increased disposable income as their children move out of the house, means that there are 78 million potential customers in America with the money and the leisure time to spend on fine dining. But food service can be a tricky industry. There's a high rate of failure, and a lot of a company's worth is derived from the cachet attached to the brand name. That said, every once in a while you find a company that manages to have an organization that is strong enough to ride out these risks and provide some real money making potential. 
.gif){kind=logo}
.gif){kind=logo}
Unlike many restaurant businesses, 
Times are tight, and one of the first ways people cut back on expenses is by eating at home more often. So out the window goes the family night at TGIF or Olive Garden. But when it comes to celebrating Mom's promotion or Dad's birthday, folks are still willing to pull out the credit card and go somewhere special. Ruth's Chris Steak House, Inc. (NASDAQ: RUTH) is one of these places. It has a solidly established brand as an upscale, special dining experience -- an experience carefully maintained at each of its nearly 100 restaurants in more than 25 cities. And there's more to come. It has a planned growth rate of 14 restaurants a year. It has been cited in many magazines and other media as a "Best Steakhouse," and the magazine Wine Spectator has awarded many of its restaurants accolades of excellence, merely adding to its tony image. 
Does GM deserve a taxpayer bailout?
Boeing could lose $3.5 billion per month if machinists strike
Cramer on BloggingStocks: Dell loses its Street cred once again 
