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What: Shares of Ruby Tuesday (NYS: RT) popped 12% on Wednesday after Raymond James upgraded the casual dining chain to outperform from market perform.
So what: Along with the upgrade, Raymond James planted a price target of $10 on the stock, representing about 20% worth of upside to yesterday's close. Ruby Tuesday shares have been pummeled over the past year on weak same-store sales, but the Wall Street analyst cited effective cost-cutting measures and easier year-over-year comparisons as catalysts for a turnaround.
Now what: Going forward, management's cost savings should help Ruby Tuesday maintain its current annual free cash flow of about $75 million to $90 million. "If investors gain confidence that free cash flow is sustainable anywhere near these levels, we believe Ruby Tuesday has significant recovery potential," wrote Raymond James analyst Bryan Elliott. While that bodes well for the stock in the short-term, Ruby Tuesday's low returns on equity and lack of a durable competitive moat still make it a questionable long-term opportunity.
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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.
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