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Restaurant stocks buoyed by notices of cost controls

NEW YORK A slew of restaurant stocks rose Wednesday, with Cosi Inc. shares posting a double-digit gain, on recent analyst reports that have touted restaurant operators’ abilities to control costs and stabilize sales in a difficult macro-economic environment. Some analysts even encouraged buying numerous undervalued stocks to take advantage of the market’s recent downturn.

Ahandful of casual-dining stocks, including O’Charley’s Inc., California Pizza Kitchen Inc. and BJ’s Restaurants Inc., rose Wednesday, despite the casual-dining sector’s sales slump and investor concern that the segment was at a standstill.

“After the recent pullback, we believe [restaurant] stocks are at attractive valuations,” securities analyst Ashley Woodruff at Friedman, Billings, Ramsey & Co. Inc. said in a note on Wednesday. “Expectations and guidance for the [second half of 2007] look reasonable, or conservative, for most companies.”

Woodruff added that while costs have spiked across the board, restaurant operators have offset the effects with menu price increases. In addition, same-store sales comparisons should ease in the second half of the year, she said.

Raymond James & Associates Inc. analyst Bryan C. Elliott said market volatility has created a vacuum under some small-cap stocks, leading to “an extraordinary valuation opportunity” for purchasing certain stocks.

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