Cost Initiatives May Not Be Enough To Drive Upside For BJ's Restaurants

Shares of BJ's Restaurants, Inc. BJRI fell to a new 52-week low of $32.24 after reporting lower-than-expected third quarter results. Meanwhile, Wedbush sees risk to high Street estimates and lowered its estimates and price target, as it believes cost savings alone may not be enough to drive upside.

The company’s third quarter EPS of $0.30 was below $0.33 consensus on -3.4 percent same-store sales growth versus -1.9 percent consensus view.

“Given our expectation for muted SSS growth trends and a declining marginal benefit from ongoing cost initiatives, we believe risk to stubbornly high consensus estimates remains,” analyst Nick Setyan wrote in a note.

In addition, Setyan is skeptical of the company’s said same-store sale drivers including “value deals, targeted loyalty offerings, select promotional days, continued digital and mobile app adoption, and higher advertising spend.”

The analyst, who has a Neutral rating on the stock, favors curtailing medium-term unit growth to focus on margins and cash flows and not expecting cost initiatives to boost margins without an improvement in same-store sales trends.

Accordingly, Setyan cut his 2016 EPS estimate to $1.72 from $1.74 and 2017 EPS estimate to $1.94 from $2.07. The analyst also cut his price target on the stock by $6 to $34.

At time of writing, shares of BJ's Restaurants fell 5.30 percent to $33.80.