Stifel Downgraded Texas Roadhouse

Thinking the U.S. economy will enter a recession in the next 3-9 months, Stifel downgraded its outlook for Texas Roadhouse, Inc. TXRH. Analyst Paul Westra noted that the lowered opinion stems from the fact that second quarter comps have been deteriorating across industries, which usually indicates a lasting dining-out slowdown.

Further, the analyst noted that margins tend to suffer, as negative relative pricing power at the start of dining-out declines pressures margins. Additionally, Westra noted that restaurant stocks underperformed (-25 percent) relative to the S&P 500 Index (-10 percent) in the year preceding the last three recessions.

With Stifel's call on the monolithic restaurant group now firmly Bearish, it downgraded the stock of Texas Roadhouse, lowered its price target and also reduced its earnings estimates for the company.

Worsening macroeconomics and competitive backdrop prompted the firm to lower its comps estimate for 3Q to 4 percent, 4Q to 4 percent and 2017 to 3 percent. The earnings per share estimate for the 3Q is being trimmed to 37 cents, 4Q to 39 cents per share and 2017 to $1.98.

Stifel downgraded Texas Roadhouse to Hold from Buy and estimates fair value of $47 per share, down from $50 per share.