Investors May Be Too Hot for California Pizza Kitchen


California Pizza Kitchen (CPKI) is hungry for cash. The company said Monday it's "exploring its financial and strategic alternatives." That means it's seeking to restructure its capital or find a buyer/investor.

By the looks of it, this move isn't born out of desperation. A company that's really hard up for cash probably wouldn't expand in Dubai, as California Pizza Kitchen did last month, nor would it raise its first-quarter earnings estimate. CPK had projected first-quarter earnings of 5 cents to 7 cents per share, but it lifted those expectations to 10 cents per share on Monday. Excluding a profit of 3 cents per share for gift cards that weren't redeemed, earnings would hit 7 cents per share, or the top of the company's guidance.

In its most recent annual report -- filed with the Securities and Exchange Commission last month -- CPK sounded fairly unconcerned about its cash requirements, although they're significant.

Investors Are Salivating

"We believe that our cash balances, together with anticipated cash flows from operations and funds anticipated to be available from our credit facility, will be sufficient to satisfy our working capital and capital expenditure requirements on a short-term and long-term basis," the report said.

That's not to say CPK has had a financially spectacular year. Sales in 2009 decreased nearly 2% from 2008, while net income was nearly halved to $4.6 million in 2009 from $8.7 million in 2008.

Judging by the market reaction to Monday's news, though, investors seem to think CPK will find a sugar daddy to pay a handsome premium for it. The stock was most recently trading at $21.15, up 41 cents, or nearly 2% from Friday's closing price, and the price-to-earnings ratio is somewhere around 112. Earlier in the session, shares traded at close to $23.

A merger or acquisition is hardly a sure thing, though, and even if it were, investors might expect a price that's a little too rich. "I think the valuation is starting to get ahead of itself," says Stephen Anderson, an analyst with MKM Partners. "I wouldn't be surprised to see [the stock] pull back to the $20 level."