Texas Roadhouse Has Potential for a Price Hike amidst Commodity Inflation, Analyst Says

Wedbush analyst Nick Setyan reiterated a Buy rating on the shares of Texas Roadhouse Inc TXRH with a price target of $123.

The analyst said Texas Roadhouse reported Q2 EPS above expectations due to better-than-expected same-store sales (SSS).

The analyst increases Q3 company SSS growth estimate to 9.0% from 6.0% and the 2023 SSS growth estimate to 9.5% from 8.4%.

The analyst views TXRH’s attractive value proposition and operational initiatives as the primary drivers of SSS growth.

Q2 commodity inflation was 6.0%, and labor inflation was 7.0%, and the management expects 2023 commodity inflation to be at the higher end of the 5-6% range provided previously, driven by beef inflation.

While management has not reached a decision on an October price increase, the analyst estimated an October price hike of ~1% for a blended 2023 menu price estimate of 5.2%.

The analyst decreased the 2023 EPS estimate slightly to $4.72 from $4.74.

The price target is based on a 13.7x EV/EBITDA multiple on the analyst’s 2024 EBITDA estimate, a ~20% premium to TXRH’s 5-year pre-COVID median forward EV/EBITDA multiple of 11.5x.

The analyst believes such a premium is appropriate given our expectation of accelerating market share gains within casual dining for the foreseeable future. 

Price Action: TXRH shares are trading lower by 2.06% at $109.91 on the last check Friday.

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