Wedbush Double Upgrades Texas Roadhouse On Hopes Of Successful 2020

Restaurant chain Texas Roadhouse Inc TXRH should be able to show investors better-than-expected same-store sales growth and margins in 2020, according to Wedbush.

The Texas Roadhouse Analyst

Nick Setyan upgraded Texas Roadhouse from Neutral to Outperform with a price target lifted from $57 to $74.

The Texas Roadhouse Thesis

Texas Roadhouse is expected to show a 4.4% same-store sales growth in fourth quarter results (February 20) but Wedbush's checks point to a beat at 4.8%, Setyan wrote in the note. The restaurant chain's outperformance and momentum could result in a larger same-store sales beat in the first quarter at 5.3% versus the Street's consensus estimate of 4.4%.

For the full year, Street analysts are modeling a comp growth of 3.9% in 2020 but the Street's figures don't fully account for menu price increases, the analyst wrote. Current expectations call for a price increase of around 2% in the back half of 2020 but there is also a "high likelihood" the company will implement an incremental price increase of 1.0 to 1.5% in late March. If accurate, a 1% price increase in late March would add an extra 27 cents to 2020 EPS

Finally, Texas Roadhouse's much smaller chain Bubba's has shown a high-single-digit same-store sales growth profile and management is looking to ramp new store openings higher from three last year to "up to eight" this year. As such, the chain's prospects represent more than "just an attractive call option."