Wedbush Downgrades BJ's, Warns Of No Inflection In Comps Trends

There is downside to the current consensus EPS expectations for BJ's Restaurants, Inc. BJRI, Wedbush’s Nick Setyan said in a report. He downgraded the rating on the company from Outperform to Neutral, while reducing the price target from $47 to $40.

The consensus expectations for 2H16 and 2017 have been “stubbornly high,” while BJ's SSS growth trends are likely to remain muted and the ongoing cost initiatives would likely result in a diminishing marginal benefit, analyst Setyan commented.

No Inflection In Comps Trends

“We see no inflection point in muted SSS growth trends,” Setyan wrote. He elaborated that recent checks had indicated continued lackluster SSS growth across geographies. BJ's SSS is expected to have declined by 2 percent quarter-to-date, and is unlikely to improve significantly. While the consensus for Q3 is at -1.8 percent, the analyst projected -2 percent.

Cost Cuts

“We no longer expect cost initiatives to deliver margin upside in the absence of an inflection in SSS growth trends. The ability of cost initiatives to deliver meaningful EPS upside even as comps continued to underperform from Q1:14- Q1:16 came to an abrupt end in Q2:16,” Setyan mentioned.

Although management’s guidance commentary suggested a significantly lower performance in the back half of this year, the current consensus estimates do not reflect this.

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