Sterne Agee Raises Estimates On Red Robin

According to Sterne Agee, Red Robin RRGB posted impressive 1Q results given solid same-store sales (SSS) and cost cutting. Sterne Agee said that it believes that these results are the first of many impressive bottom-line results given improving SSS/traffic and management's cost savings initiatives on a depressed earnings base. “As such, we are upgrading shares of RRGB from Neutral to BUY based on the following: 1) New CEO (Stephen Carley) has articulated a well-defined plan to drive sales and improve operations. 2) We believe that RRGB is in the early innings of a significant cost savings initiative which will unfold over the next 18-24 months. The Company has identified over 200 areas to cut costs of which only 40 had been tapped into in 1Q11. 3) The casual dining industry and Red Robin specifically are seeing strengthening sales/traffic. The Company reported an increase in SSS of 1.9% in 1Q and we estimate SSS of +2.5%- 3.0% in 2Q to date after factoring out an unfavorable calendar shift related to Easter. 4) Our 12-month target price of $40 is based on 7.5x our 2012 EBITDA estimate of $98.8 million.” Red Robin closed yesterday at $28.52.