Credit Suisse On How Texas Roadhouse, Darden, Cheesecake Factory, Bloomin' Brands Are Navigating Pandemic

Thursday is proving to be a busy day for restaurant investors, as Credit Suisse analyst Lauren Silberman initiated coverage of a handful of names, including Texas Roadhouse Inc TXRH, Darden Restaurants, Inc. DRI, Cheesecake Factory Inc CAKE and Bloomin' Brands Inc BLMN.

Texas Roadhouse: Recovery Story

The Analyst: Silberman initiated coverage of Texas Roadhouse with an Outperform rating and $63 price target.

The Thesis: Texas Roadhouse continues to offer guests a "compelling" value proposition, with high exposure to suburban areas that offers a safer in-dining experience with a booth seating layout, Silberman said in the initiation note.

The restaurant's exposure to off-premise sales implies it will see faster sales and profit recovery versus peers, the analyst said. 

Texas Roadhouse should maintain half of the off-premise sales volumes it generated when its dining rooms were fully closed and regain 85% of on-premise capacity in fiscal 2021 and 90% in fiscal 2022, she said. 

TXRH Price Action: Shares of Texas Roadhouse were trading 0.71% lower at $48.71 at the time of publication Thursday.

Darden: Best-In-Class

The Analyst: Silberman initiated coverage of Darden Restaurants with an Outperform rating and $95 price target.

The Thesis: Darden is a best-in-class operator within the casual dining segment, Silberman said.

The parent company of Olive Garden is backed by a well-capitalized balance sheet that allows the company to invest in future growth by leveraging its scale to generate efficiencies that should support its above-average margin profile, the analyst said. 

The company's long-term growth potential remains unchanged, and investors can expect 2.2% unit growth over the next three years, she said.

Darden should be able to take advantage of a more favorable real estate environment that will further improve new unit economics, Silberman said. 

DRI Price Action: Shares of Darden Restaurants were trading lower by 3.03% to $70.90 at last check.

Cheesecake Factory: Overexposure To Malls

The Analyst: Silberman initiated coverage of Cheesecake Factory with a Neutral rating and $24 price target.

The Thesis: Around eight of 10 Cheesecake Factory restaurants are located at or near a mall, and 10% to 15% of traffic comes from mall-goers, Silberman said. The COVID-19 pandemic accelerated shifts in consumer behavior away from malls, so Cheesecake Factory's recovery outlook faces more headwinds than some of its peers, the analyst said. 

On the other hand, the restaurant chain is among the best-positioned in the casual dining space to benefit from off-premise orders given its broad menu, she said.

Its exposure to the mall remains an overhang, and fiscal 2022 operating income is modeled to be 15% below fiscal 2019 levels, Silberman said.

CAKE Price Action: Shares of Cheesecake Factory were trading lower by 2.44% at $20.93 at last check. 

Bloomin' Brands: Show Me Story

The Analyst: Silberman initiated coverage of Bloomin' Brands with a Neutral rating and $12 price target.

The Thesis: Bloomin' Brands deserves credit for showing "reasonably resilient" same-store sales performance throughout the COVID-19 pandemic at its Outback U.S. and Carabba's chains, Silberman said.

Yet the company has high leverage, unfavorable exposure to Brazil and a strategic review process that's been paused by management, the analyst said. 

Sentiment could improve if management shows better visibility into any reasonable strategic alternative that would create value, she said.

In the meantime, investors would need to see better signs related to the health of the portfolio and balance sheet, Silberman said.

BLMN Price Action: Shares of Bloomin' Brands were trading lower by 6.92% at $9.48 at last check.

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