Longbow Downgrades Texas Roadhouse Ahead Of Q1 Report, Stays Positive On Long-Term Fundamentals

Casual restaurant chain Texas Roadhouse Inc TXRH has seen its stock rally about 35 percent over the last 12 months, making the valuation unattractive, according to Longbow Research.

The Analyst

Longbow Research analyst Alton Stump downgraded shares of Texas Roadhouse from Buy to Neutral with no assigned price target.

The Thesis

Texas Roadhouse's system-wide comps may have increased 3.5-4 percent in the first quarter of 2018, in-line with the consensus estimate, Stump said in a Tuesday note, citing conversations with franchisees.

The company is scheduled to deliver its Q1 print April 30.

Given the run-up in shares, the analyst said the comps performance is unlikely to drive Texas Roadhouse's valuation materially higher from current levels, at least in the short term.

The restaurant chain is likely to report system-wide growth of 6.6-7.1 percent, Stumps said. Comps decelerated in late Q1, the analyst said.

The weather impact was almost neutral over the last five weeks of the quarter compared to an estimated 100-150 basis point drag for the full quarter, according to Longbow.

For the quarter-to-date period into Q2, comps were likely up 5-5.5 percent, although they get tougher in May and June, Stump said.

Texas Roadhouse may have gained share over at least some, if not all, of its major steakhouse competitors.

"We recommend investors remain opportunistic in the event of a near-term pullback in the shares, since we remain positive on the company's long-term fundamentals."

The Price Action

Texas Roadhouse shares were down 0.58 percent at $62.04 at the time of publication Tuesday.

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