Bounce In BJ's Restaurants Shares Following Election 'Unwarranted'

“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,” Wedbush’s Nick Setyan said while downgrading the rating on BJ's Restaurants, Inc. BJRI from Neutral to Underperform with a price target of $34.

'Unwarranted' Bounce

Setyan believes the “post-election bounce” in the stock was unwarranted, following the 8 percent appreciation in BJ’s Restaurants shares since November 8 as compared to the 13 percent increase among its casual dining peers and a 13 percent rise in the overall publicly traded restaurants segment.

“We do not believe the uptick in casual diners is warranted, including the uptick in BJRI, even if it has unperformed the rest of casual dining. We do not see an uptick in transaction trends, we believe near- and medium-term labor headwinds remain, and we see a potential tax cut benefit being offset by the elimination of tax credits,” the analyst explained.

Same-Store Sales Trends

Setyan noted there was little to no improvement in the same-store sales growth trends, with channel checks suggesting that the consensus forecast of -1.8 percent for Q4 likely to prove conservative.

The analyst also does not expect cost initiatives to be able to drive margin upside without subsequent inflection in the same-store sales growth trends.

“We also increase our labor expense estimate for 2017 slightly as our city-by-city analysis of wage inflation in 2017 trumps our previous expectation of a lower CA statewide wage increase in 2017,” Setyan stated.

The EPS estimate for 2017 has been lowered from $1.94 to $1.86.