Nathan's Famous: The Royalty Approach Is Underappreciated

seekingalpha09-24

Nathan’s Famous has stably expanded its offering on retail shelves, enabled by a good brand.Nathan's Famous' growing licence royalties are incredibly valuable, as they bring incredibly capital light, ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2469465199?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/960428498/image_960428498.jpg","is_english":true,"pubTime":"2024-09-24 17:58","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2469465199","market":"hk","top_or_hot":-1,"title":"Nathan's Famous: The Royalty Approach Is Underappreciated","media":"seekingalpha","content":"<div>\n<p>Nathan’s Famous has stably expanded its offering on retail shelves, enabled by a good brand.Nathan's Famous' growing licence royalties are incredibly valuable, as they bring incredibly capital light, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4722891-nathans-famous-the-royalty-approach-is-underappreciated\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Nathan's Famous: The Royalty Approach Is Underappreciated</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nNathan's Famous: The Royalty Approach Is Underappreciated\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-24 17:58 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4722891-nathans-famous-the-royalty-approach-is-underappreciated><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Nathan’s Famous has stably expanded its offering on retail shelves, enabled by a good brand.Nathan's Famous' growing licence royalties are incredibly valuable, as they bring incredibly capital light, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4722891-nathans-famous-the-royalty-approach-is-underappreciated\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4209","symbol_name":"餐馆","start_time":0,"source_url":"https://seekingalpha.com/article/4722891-nathans-famous-the-royalty-approach-is-underappreciated","article_id":"2469465199","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/960428498/image_960428498.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2469465199","pubTimestamp":1727171935,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Nathan’s Famous has stably expanded its offering on retail shelves, enabled by a good brand.Nathan's Famous' growing licence royalties are incredibly valuable, as they bring incredibly capital light, ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4209":"餐馆","NATH":"Nathan’s Famous"},"translate_title":"内森的著名：版税方法未被充分重视","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"NATH":0.9},"content_text":"Nathan’s Famous has stably expanded its offering on retail shelves, enabled by a good brand.Nathan's Famous' growing licence royalties are incredibly valuable, as they bring incredibly capital light, high-margin revenues.The continued stable growth is undervalued by the market by a wide margin.   artran/iStock Editorial via Getty Images Nathan’s Famous, Inc. (NASDAQ:NATH) sells food products related to hot dogs under the company-named brand, selling the items across the United States in grocery stores and other places. In addition, the company franchises and operates restaurants under the Nathan’s Famous brand, offering hot dogs and complementary items. At the end of FY2024 in March 2024, the company had 234 total restaurants, of which 153 are franchised throughout the United States, 77 are franchised internationally, and four are operated by the company in New York. Inclusive of $30 in special dividends, Nathan’s Famous’ stock has returned a total of 63% in the past decade at a CAGR of 5.0%. On top, the company pays out a regular dividend with a current yield of around 2.6%, making the past decade’s stock performance moderate but fair.   Ten Year Stock Chart (Seeking Alpha) Nathan’s Famous Continues Growing Well Nathan’s Famous has built a very well-recognized hot dog brand across past decades – while total restaurants have even slowly declined from 386 at the end of FY2002 into just 234 outstanding after FY2024 being a minor part of total operations, the company has very effectively expanded its retail shelf offering across the United States into grocery stores, resulting in a total revenue CAGR of 6.2% from FY2002 into current trailing revenues of $141.4 million as of Q1/FY2025.   Author's Calculation Using TIKR Data While the growth has seen worse and better years, overall, Nathan’s Famous has managed to grow in a stable manner. The company also continued to grow at a good 6.6% pace in the company’s fiscal Q1 despite US food inflation already slowing down into just around 1.1% throughout the fiscal quarter – despite an established brand presence already, Nathan’s Famous is still managing to grow well organically. License Royalties Make Nathan's Famous' Brand Valuable Nathan’s Famous’ business strategy makes the achieved growth very valuable to shareholders – behind the revenue growth, the company has a fantastic five-year average return on total capital of 26.1%, being extremely good for the consumer staples sector. The company has annually spent an average of just $781 thousand on capital expenditures from FY2015 to FY2024 to fuel the growth, and the current trailing operating margin stands incredibly high at 24.6% making the brand's growth incredibly accretive. While Nathan’s Famous also directly sells food products to distributors and foodservice companies, the company’s partnership with Smithfield Foods and others is a driver for the company’s incredibly capital efficient growth. In the partnership, Nathan’s Famous earns stable licensing royalties from the licensees’ sales, while the licensees are responsible for manufacturing, distributing, marketing and selling Nathan's Famous products and paying Nathan’s Famous a royalty from the sales. Ultimately, the licensees create incredibly high-margin and low-investment revenues for Nathan’s Famous through earned license royalties. In Q1, license royalty revenues grew by 10.8% year-on-year into $12.9 million, being around 29% of Nathan’s Famous’ total sales. Ultimately, Nathan’s Famous’ great brand health enables the good royalty revenues: Smithfield Foods and other licensees ultimately pay royalties for the brand within quite a weakly differentiable product category. The company’s annual hot dog eating contest and other brand presence have continued driving healthy brand recognition, shown by the financial performance as well as the brand’s Google search volumes. The brand image needs to be kept for Nathan’s Famous to keep growing well over the long term, and so far, the company has managed to keep up good relevance. The NATH Stock Is Cheap I constructed a discounted cash flow [DCF] model to estimate a fair value for Nathan’s Famous’ stock. I estimate revenues to continue growing well, aided by good license royalty growth and overall branded product sales – in the model, I estimate revenue growth to gradually slow down from a 6.2% growth estimate in FY2025 into an eventual 2.5% perpetual growth at a total 4.0% CAGR from FY2024 to FY2034. The estimated CAGR is still more conservative than Nathan’s Famous’ CAGR in the past two decades. As the license royalties create very high-margin revenues for Nathan’s Famous, I estimate the company’s EBIT margin to even slightly rise from a 25.5% estimate in FY2025 into an eventual 26.0% level. The capital light strategy also makes the growth very effective, enabling a good cash flow conversion in the model.   DCF Model (Author's Calculation) The estimates put Nathan’s Famous’s fair value estimate at $133.23, 72% above the stock price at the time of writing – the company’s continued growth seems to be greatly undervalued by the market. Even with stabler revenues in the future, the trailing EV/EBIT only stands at 10.3, being quite low considering the industry’s low risk profile and Nathan’s Famous’ stable cash flows. CAPM A weighted average cost of capital of 7.69% is used in the DCF model. The used WACC is derived from a capital asset pricing model:   CAPM (Author's Calculation) In Q1, Nathan’s Famous had around $1.1 million in interest expenses, making the company’s interest rate 7.11% with the current amount of interest-bearing debt. I estimate the company’s debt balance to remain moderate with a 15% long-term debt-to-equity ratio. To estimate the cost of equity, I use the 10-year bond yield of 3.75% as the risk-free rate. The equity risk premium of 4.11% is Professor Aswath Damodaran’s estimate for the US, updated in July. While not a perfect match for Nathan’s Famous’ operations, I use Aswath Damodaran’s estimated food wholesalers’ unlevered beta of 0.72, which I lever with the 15% debt-to-equity ratio into a 0.80 beta. With a liquidity premium of 1.0%, the cost of equity stands at 8.04% and the WACC at 7.69%. Takeaway & Closing Thoughts Nathan’s Famous has grown well throughout the company's history with a good brand perception. The brand presence has also allowed for an incredibly capital light expansion strategy, in part relying on licensees that are responsible for manufacturing and pay Nathan’s Famous high-margin royalties. The brand perception seems to remain healthy, also showcased by continued fiscal Q1 growth amid lower food inflation.  The market seems to undervalue the company’s growth as my DCF model estimates very good upside for the stock. I believe that the undervaluation is related in part to Nathan’s Famous’ lacking investor relations – the company has no Wall Street analysts, doesn’t hold investor calls, and discusses quarterly results in a minimal way within quarterly press releases. Yet, as the valuation is very attractive and looks to generate attractive risk-adjusted returns, I initiate Nathan’s Famous at a Buy rating.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2469465199"}