Market Overview

Red Robin Burgers Is 'Ready To Fly,' Analyst Says In Upgrade

Red Robin Burgers Is 'Ready To Fly,' Analyst Says In Upgrade

The bullish case for Red Robin Gourmet Burgers, Inc. (NASDAQ: 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. 

Related Links:

Stifel's Restaurant Stock Menu: What To Buy, What To Sell

Are Restaurants Safe From The Amazon Effect?

Photo by Cbraccialini via Wikimedia. 

Latest Ratings for RRGB

Nov 2019MaintainsHold
Aug 2019DowngradesNeutralUnderperform
Aug 2019MaintainsEqual-Weight

View More Analyst Ratings for RRGB
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