PW Partners Believes BJRI Stock is Materially Undervalued

Rhea-AI Summary

PW Partners, a shareholder of BJ's Restaurants Inc. (BJRI), intends to close the gap between BJRI stock price and its intrinsic value. They recommend cost reduction, stock buyback, board size reduction, and board appointment to enhance shareholder value.

Insights

Financial Analyst

From a financial perspective, the actions proposed by PW Partners, such as a substantial cost reduction strategy and a $100 million stock buyback, could signal a strong commitment to enhancing shareholder value. Cost reduction, if executed effectively, has the potential to improve EBITDA margins and result in a leaner, more efficient operation. However, it is essential to scrutinize the areas targeted for cuts, as too aggressive a reduction could negatively impact the company's long-term growth potential and operational capabilities.

The stock buyback recommendation is often seen as a positive sign to the market, indicating that the company believes its stock is undervalued and that it is confident in its future performance. The impact on the earnings per share (EPS) could be favorable, as buybacks reduce the number of outstanding shares, potentially increasing the stock's value. Nonetheless, the timing and scale of buybacks must be carefully considered alongside the company's capital allocation strategy to ensure long-term financial health and operational needs are not compromised.

Market Research Analyst

The suggestion to reduce the board size and appoint new representatives could be indicative of a desire for a more agile and decisive governance structure, which might be well-received by the market if it leads to more streamlined decision-making. However, the effectiveness of such changes depends on the quality and experience of the incoming board members and their alignment with the company's strategic vision.

Furthermore, the claim that BJRI's assets have a replacement cost significantly higher than the current share price introduces a compelling argument for undervaluation. If substantiated, this could attract interest from investors seeking undervalued opportunities. It is crucial, however, to validate these calculations and consider market conditions, as asset replacement costs can fluctuate based on economic factors and industry-specific trends.

Corporate Governance Expert

The call for immediate action by PW Partners reflects a proactive approach to corporate governance, emphasizing the importance of a board that prioritizes shareholder value. The historical context provided, where past engagement with the board led to significant stock price increases, serves to bolster the credibility of their proposals. However, the effectiveness of these changes in governance will ultimately hinge on the strategic fit of the new board members and their ability to drive value creation.

It is also noteworthy that activist investors like PW Partners can act as catalysts for change, but their recommendations need to be balanced against the long-term interests of the company and all shareholders. The proposed initiatives should be evaluated for their potential to deliver sustainable growth and not just short-term stock price appreciation.

- PW Partners Intends To Take Action To Close The Gap Between BJRI Stock Price And Its Intrinsic Value.

JUPITER, Fla., Feb. 20, 2024 /PRNewswire/ -- PW Partners, LLC and its affiliates ("PW Partners") a value-oriented, activist investor which is a shareholder of BJ's Restaurants Inc. (the "Company", "BJ's"), (Nasdaq: BJRI) sent a letter to Gerald Deitchle, Chairman of BJ's, calling for immediate actions to create long-term value for shareholders.  

Dear Mr. Deitchle:

PW Partners Capital Management, LLC ("PW Partners") is an investment group that beneficially owns approximately 4.9% of the outstanding shares of BJ's Restaurants, Inc (the "Company", "BJRI" or "BJ's"), (Nasdaq: BJRI).  We have been shareholders for over a decade.  Given the historical performance of BJRI's stock price, PW Partners intends to take action to materially improve the operations of BJRI, which we believe will close the gap between BJRI's share price and its intrinsic value.  PW Partners believes BJRI's stock price is materially undervalued. 

We recommend the Board take the following actions:

• Reduce the current cost structure by $50 million by the end of the second quarter of 2024 with a focus on G&A, Labor and Purchasing. PW Partners is ready, willing and able to lead in the execution of this cost savings plan;
• Execute a $100 million stock buyback.  Given the stock price, the quantum of share repurchases in the fourth quarter of 2023 was disappointing.  The Company should be aggressively buying back its stock at these prices.  BJ's has the opportunity to purchase Company assets at a material discount to their replacement value.  PW Partners believes replacement cost for the Company's assets materially exceed the current share price.  PW Partners calculates the replacement cost of the Company's assets at approximately $55 per share;
• Reduce the Board size to seven members, all of whom are focused on shareholder value.  The current Board size is excessive and has not translated into shareholder value;
• Appoint our representatives to the Board. BJ's shareholders deserve a Board that will act vigorously to maximize shareholder value.  We believe our initiatives must be implemented immediately at this critical time in the Company's history.

Ten years ago, PW Partners engaged and joined the BJ's Board because we felt there was a significant opportunity for margin expansion.  We were correct and the stock price increased more than 80% over the following year as management realized material cost efficiencies.  We believe the margin expansion opportunity is even greater today while the stock price is much cheaper than it was in 2014. 

CC: Stephen Fraidin 
   Cadwalader, Wickersham & Taft LLP

          Sincerely,

          Patrick Walsh 
          Chief Executive Officer 
          PW Partners, LLC 

View original content to download multimedia:https://www.prnewswire.com/news-releases/pw-partners-believes-bjri-stock-is-materially-undervalued-302066583.html

SOURCE PW Partners

FAQ

What actions does PW Partners recommend to improve BJRI's stock value?

PW Partners recommends reducing the current cost structure by $50 million, executing a $100 million stock buyback, reducing the Board size to seven members, and appointing their representatives to the Board.

What percentage of BJRI shares does PW Partners own?

PW Partners beneficially owns approximately 4.9% of the outstanding shares of BJ's Restaurants Inc.

What is the recommended cost reduction target by PW Partners?

PW Partners recommends reducing the current cost structure by $50 million by the end of the second quarter of 2024.

How much stock buyback does PW Partners suggest for BJRI?

PW Partners suggests executing a $100 million stock buyback for BJ's Restaurants Inc.

What is the replacement cost of BJ's assets calculated by PW Partners?

PW Partners calculates the replacement cost of BJ's assets at approximately $55 per share, exceeding the current share price.