Wall Street Loves Texas Roadhouse After Q4 Earnings

Shares of Texas Roadhouse Inc TXRH surged more than 12 percent Tuesday after it reported an upbeat earnings for the fourth quarter.

The restaurant operator earned $0.32 for the fourth quarter, and the number topped Street view by $0.02. Comparable sales increased 4.5 percent at company restaurants.

BTIG's Peter Saleh, who has a Neutral rating on the stock, said, "We continue to be impressed with Texas Roadhouse's consistent sales outperformance and encouraged that this year will finally be the year of lower beef costs. While the commodity outlook is a welcome and long-awaited change from recent years, we expect increasing labor inflation and limited remaining store-level efficiencies to result in only modest margin improvement."

Brian Bittner of Oppenheimer noted that the company sits well positioned in 2016 with comps off to a healthy start and food costs moving lower (down 1-2 percent), though labor remains a headwind. Bittner, who has a Perform rating on the stock, raised his 2016 EPS estimate to $1.77 from $1.68 owing to better comps and margins.

Baird analyst David Tarantino said, "We continue to believe TXRH is well positioned to deliver positive 2016 earnings performance behind top-line momentum and commodity deflation."

Tarantino raised his 2016 EPS view by $0.05 to $1.70 and price target by $3 to $41. The analyst has a Neutral rating on the stock.

BMO analyst Andrew Strelzik is of the view that Texas Roadhouse's same-store sales growth continues to defy expectations, highlighted by the significant acceleration of its two-year comp trends in the first seven weeks of the first quarter of 2016. He said the fundamentals appear in place to drive EPS growth of 20 percent plus in 2016 for the first time in more than five years.

That said, Texas Roadhouse's stock appears to incorporate its strong fundamentals and valuation leaves little room for error in an environment with continued operating risks. Strelzik has a Market Perform rating and $38 price target on the stock.

Andy Barish of Jefferies maintained a Hold rating and $36 price target stating that he expects the company to continue to consistently perform, but believe upside to the stock would require more leverage on operating expenses.

Barclays analyst Jeffrey Bernstein, who has an Overweight rating and $47 price target, said looking to 2016, the topline drivers remain intact, and food inflation is guided to turn to deflation, which has been long overdue, and should more than offset labor cost inflation. This, along with pricing, should support a return to restaurant margin expansion, and accelerating EPS growth in 2016.

"With MSD comp and unit growth, TXRH can generate sustainable 10% revenue growth in our opinion, an anomaly in casual dining," Bernstein added.

Meanwhile, David Palmer of RBC raised price target by $1 to $42 and 2016 EPS estimate by $2 to $1.68 to reflect stronger margins from beef deflation and continued industry-leading SSS (same store sales) momentum.

"While upside to margins appears highly likely, Texas Roadhouse's SSS trends have historically been highly correlated to the beef cycle. We remain somewhat concerned about the company's ability to sustain industry-leading SSS momentum as the beef cycle rolls over," said Palmer who has a Sector Perform rating on the stock.