3 Reasons Why RBC Craves Texas Roadhouse's Stock

Texas steakhouse-themed restaurant chain Texas Roadhouse Inc TXRH disappointed many investors in its second-quarter earnings report, but the case for being buyers of the stock can be made by looking beyond the top-and-bottom-line miss, according to RBC.

The Analyst

RBC Capital Markets' David Palmer upgraded Texas Roadhouse from Sector Perform to Outperform with a price target lifted from $66 to $68.

The Thesis

The case for buying Texas Roadhouse's stock can be made for three reasons, despite the immediate 12 percent sell-off in the stock, Palmer said in a note.

The restaurant chain should continue to benefit in the coming years from tax reform savings, labor reinvestments in 2018 positions the company well versus its rivals, and a favorable environment for food and beef costs.

Texas Roadhouse did show a deceleration in same-store sales growth, but on a multi-year stacked basis its same-store sales momentum remains "remarkably consistent" at 3 to 4 percent the analyst wrote. The consistency should result in a normalized 10-percent or more revenue growth in the near-term.

Texas Roadhouse remains among the few "top-preference chains" that offer a differentiated experience at a reasonable price. Palmer said this positions the company well in the event that a growing number of families chose to dine at home for special occasions instead of going out to eat.

Price Action

Shares of Texas Roadhouse were trading lower by 6 percent to $62.09 at time of publication.

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