Morton's Reports Q3 EPS Loss But Beats Consensus

Morton's Restaurant Group MRT reported Q3 EPS loss of ($0.13) which was $0.01 better than our estimate and in line with Consensus. Q3 comps were +3.2%, which was below Wells Fargo's target of +5%. Positive trends in business travel and convention attendance benefiting weekday business. Comps for the first four weeks of Q4 increased 3.5% versus management's guidance of +4 to +6%. Encouraged by commentary around the pace of December private boardroom bookings which are up 5% yr/yr. While management trimmed the 2010 revenue and EPS outlook it continues to think MRT is well-positioned given positive travel trends and the outlook for continued business spending in 2011. Trimming EPS estimates to $0.30 from $0.33 for 2010 and to $0.42 from $0.45 in 2011. Over the next 12 months, Wells Fargo believes that the shares of MRT may warrant a valuation range of $8-9 based on the stock trading at about 18-20x its 2011 EPS estimate. Wells Fargo believes that key risk factors that could affect share valuation may include changes in business travel and consumer discretionary spending, economic recession concerns, same-store sales volatility, challenges related to new unit development, food safety concerns, and commodity cost volatility, particularly for beef. MRT closed Monday at $5.57