McCormick & Schmick's: Bounty From the Seas

If your Valentine's Day plans include dinner at a fancy establishment and you see all the tables taken, you'll know why investors fall in love with upscale dining chains. Shares of Cheesecake Factory and of P.F. Chang's China Bistro have been fabulous growth investments since the late 1990s. Here's another restaurant concept to check out.

McCormick Schmick's Seafood Restaurants (symbol MSSR), founded in 1979 in Portland, Ore., has seen its stock more than double since its initial public offering in 2004. MS operates 59 company-owned (not franchised) restaurants in 24 states and Washington, D.C., with full bar service and a menu highlighted by fresh fish, lobster and oysters from all over the U.S. and Canada.

But the stock may be just starting to cook. On Monday, McCormick Schmick's reported quarterly earnings that beat analysts' estimates and, more importantly, announced a 3.8% increase in same-store sales (sales at restaurants open at least one year), far above the Street's expectations. (Last year's earnings figures included a one-time gain from a tax settlement, so don't be swayed by what appears to be a decline in profits during the most recent quarter.)

The news sent the stock up 9%, to $24. It also caught the attention of such analysts as Bank of America Securities' Andy Barish. He notes that McCormick Schmick's not only reported good profits but delivered strong "guidance," or forecasts, for the next quarter and the rest of 2006. Barish estimates that the company will earn 84 cents a share this year. Analyst Matthew DiFranco of Thomas Weisel Partners raised his earnings estimates for the rest of 2006 and for 2007 to 86 cents a share and 91 cents a share, respectively.

McCormick Schmick's trades at about 28 times year-ahead earnings estimates. That's a bit lower than the price-earnings ratios for Cheesecake Factory and P.F. Chang's, both of which have delivered mouth-watering gains for about as long as they have been trading publicly. McCormick Schmick certainly is no sure thing, but it looks like a nice catch. In any case, take it from me, it's a wonderful place to take your significant other.

--Jeffrey R. Kosnett