Red Robin Flying Higher

BTIG upgraded Red Robin Gourmet Burgers, Inc. RRGB following the release of its second-quarter results, which showed directional change in traffic trends. Shares were rallying 13.40 percent to $60.95.

Analysts Peter Saleh and Ben Parente believe the consumer is finally rewarding the concept with traffic after several quarters of aggressive investment in value. BTIG upgraded shares from Neutral to Buy, with a $64 price target.

See also: The Restaurant Sector Q2 Earnings Cheat Sheet

Appetizing Results

BTIG noted the second-quarter adjusted earnings per share of 61 cents exceeded its estimate of 56 cents, helped by a lower tax rate, partly offset by lower restaurant margin and higher interest rate.

Same-store sales were up 0.5 percent, exceeding the firm's expectations for flat performance, as traffic improved 1 percent, outperforming Black Box by 360 basis point compared to 120 basis point in the first quarter.

On the outlook, BTIG noted management reiterated its 2017 earnings per share guidance of $2.80-$3.10, although suggesting it would come near the low end of the range. This, the firm believes, is due to the company's underwhelming third-quarter EPS guidance.

Lowering Estimates

Accordingly, the firm lowered its 2017 earnings per share estimate from $3.07 to $2.84, mainly due to a reduction to it third-quarter EPS estimate. The firm also lowered its 2018 estimate from $3.42 to $3.27.

BTIG expects traffic to remain positive in the second half of 2017 and 2018 due to initiatives such as online ordering, refocused advertising and delivery. The firm believes these initiatives would add nearly 3 percent of sales in available units.

"We have previously discussed encouraging developments at Red Robin including a reduction in unit growth, greater emphasis on free cash flow generation and the selection of a well-respected CFO though negative traffic trends have kept us on the sidelines," BTIG analysts said.