The bullish case for Red Robin Gourmet Burgers, Inc. RRGB is simple: ongoing momentum coupled with cost saving initiatives creates a scenario where the stock is "ready to fly," according to Stifel.
The Analyst
Stifel's Chris O'Cull upgraded Red Robin Gourmet Burgers from Hold to Buy with a price target lifted from $65 to $75.
The Thesis
Part of the bullish case for Red Robin is based on encouraging third-party data that confirm favorable trends remain intact, O'Cull said in the upgrade note.
Data from Knapp Track shows same-restaurant-sales in the company's core Pacific Northwestern, Californian and Texan markets continue to perform at a rate that is better than the improved national average in the first quarter, O'Cull said. The momentum could be attributed to the off-premise channel and the expansion of value offerings, including $6.99 entrees with bottomless sides, the analyst said.
Red Robin continues to work on initiatives to optimize its in-store labor model, including automation and productivity efforts, O'Cull said. The initiatives could be "quite meaningful" contributors to earnings, he said.
The restaurant chain is experiencing a lift from outside cost factors, including a recent decline in beef prices that helps the company, as it buys beef at market prices, the analyst said.
Red Robin's stock is trading at 7x EV/EBITDA NTM, which implies that multiple concerns — including growth coming from the lower margin off-premise channel and intense competition in the restaurant sector — are reflected in the current valuation, O'Cull said.
Red Robin's ongoing momentum coupled with cost-saving initiatives should result in an EPS of $2.80 in 2018 and $3.20 in 2019, the analyst said. Both of these estimates are above the Street EPS estimates of $2.68 and $2.90, respectively.
Price Action
Red Robin shares were rallying 5.8 percent at the time of publication Wednesday to $64.70.
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Photo by Cbraccialini via Wikimedia.
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