3 Reasons Red Robin Is One Of The Best Ideas In Restaurant Sector

Stephens said in a note that Red Robin Gourmet Burgers, Inc. RRGB remains its best idea in restaurant, attributing the opinion to a trio of factors, namely improving revenue trends, meaningful cost opportunities across multiple line items and valuation.

As such, the firm has an Outperform rating and a $85 price target for the shares of the company.

At time of writing, Red Robin Gourmet shares were slipping 0.50 percent to $65.32.

Analyst Will Slabaugh believes menu innovation on the low and middle ends, such as Tavern Platform, and improved speed of service, has positioned the company to maintain and even accelerate momentum from the better-than-expected comp performance in the second quarter.

See also: 3 Restaurants These Analysts No Longer Have An Appetite For

Stephen noted that the third quarter is a seasonally softer one. Notwithstanding this, the firm sees multiple opportunities for margin improvement in the near and long term.

Also, the firm noted that the company's stock is currently trading at 7.2 times the fiscal 2018 EBITDA estimate compared to an average of 8.6 times when comping positively.

"When combining these factors with short interest that continues to rise (34 percent), we see RRGB as the most attractive name in our coverage universe," the firm said.

For the third quarter, the firm said it expects same-store sales growth of 1 percent and adjusted earnings per share of 22 cents. This compares to the consensus estimates, which call for comps of 1 percent and adjusted earnings per share of 30 cents.

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