3 Texas Roadhouse Analysts Agree: Wait For A Better Entry Point In Stock

Steakhouse chain Texas Roadhouse Inc TXRH reported fourth-quarter results Tuesday that were "somewhat mixed" despite a top-and-bottom-line beat, according to Stephens.

The Analysts

• Stephens' Will Slabaugh maintains an Equal-weight rating on Texas Roadhouse stock with an unchanged $70 price target.
• Wedbush's Nick Setyan maintains at Neutral, unchanged $62 price target.
• Baird Equity Research's David Tarantino maintains at Neutral, unchanged $61 price target.

Stephens Gives Thumbs Up To Price Hikes

Texas Roadhouse's same-store sales growth of 5.6 percent in the fourth quarter marks the continuation of an "impressive string" of outperformance against consensus estimates, Slabaugh said in a Wednesday note.

Traffic growth of 3.2 percent also beat expectations but didn't help to fully offset ongoing wage inflation, while COGS and G&A came in higher than expected, the analyst said. 

The restaurant chain said it's enacting a 1.5-percent increase to menu prices at the beginning of the second quarter, and Slabaugh said this should be viewed positively by investors. A price increase will help offset mid-single-digit labor inflation in 2019 and eliminate worries that the Street's 2019 estimates will move lower, he said. 

Texas Roadhouse's commentary on second quarter trends to date suggests another period of outperformance versus peers, Slabaugh said.

The absence of any notable upside versus the Street's expectations should have investors sitting on the sidelines, but ready to become "more constructive on a pullback," according to Stephens. 

Related Link: Goldman On Restaurants: Buy Texas Roadhouse, Sell Yum, Hold Starbucks

Wedbush: 'Clouded' Near-Term Margins

Texas Roadhouse will likely deliver another year of same-store sales outperformance in 2019, but this won't fully offset a "clouded" near-term margin outlook, Setyan said in a Wednesday note. The company's commodity inflation guidance of 1-2 percent coupled with a year-over-year increase in labor expenses implies a "layer of uncertainty" for the current year, the analyst said. 

The company did lift its dividend payout to investors for the sixth consecutive year, and management could also use its cash on hand for opportunistic franchisee acquisitions and share buybacks to help lift earnings, Setyan said. 

Wedbush's $62 price target is based on 25 times 2019 earnings, which already implies a 40-percent premium to the casual dining group at 17.6 times. The premium valuation is warranted due to Texas Roadhouse's category-leading transaction and unit growth, but Wedbush's neutral stance factors in minimal near-term margin visibility, Setyan said. 

Baird Sees Good Start To Q1, Less Positive Outlook 

Texas Roadhouse said comps in the first 54 days of the first quarter were higher by 6 percent, and earnings could grow 5 percent year-over-year, Tarantino said in a Tuesday note.

The entire casual dining group could see a strong first quarter due to tax refunds, but trends are likely to slow once tax cuts are fully cycled in the second quarter, the analyst said. 

Texas Roadhouse will likely stand out in the casual dining group given a favorable value proposition despite the menu price increase set for April, according to Baird. 

The stock offers investors a "compelling long-term growth story" given expectations for 7-10-percent revenue growth and 13-percent EPS growth annually, but the stock is balanced at current levels, Tarantino said. 

Price Action

Texas Roadhouse shares were down 3.05 percent at $63.56 at the time of publication Wednesday. 

Related Link: Texas Roadhouse's Upside Is Priced In, BTIG Says In Downgrade

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