Market Overview

Texas Roadhouse's Valuation, In-Line Growth Prospects Prompt Wedbush Downgrade

Share:
Texas Roadhouse's Valuation, In-Line Growth Prospects Prompt Wedbush Downgrade
Related TXRH
Casual Dining Stocks Struggle To Cook Up More Foot Traffic
Texas Roadhouse's Upside Is Priced In, BTIG Says In Downgrade
IBD 50 Stocks To Watch: Top Restaurant Serves Up New Buy Point (Investor's Business Daily)

Restaurant chain Texas Roadhouse Inc (NASDAQ: TXRH) has seen its stock rise nearly 20 percent since the end of July, and the higher valuation implies there's little room for error moving forward, according to Wedbush.

The Analyst

Wedbush's Nick Setyan downgraded Texas Roadhouse from Outperform to Neutral with an unchanged $67 price target.

The Thesis

Texas Roadhouse's stock momentum can be attributed to encouraging industrywide data, but Wedbush's firsthand checks point to mostly in-line growth prospects, Setyan said in the downgrade note. (See the analyst's track record here.) 

Same-store sales trends since the start of the third quarter are likely up 4.3 percent, which is in-line with consensus estimates, the analyst said. The firm's checks also suggest a 3.8-percent (co-owned) same-store sales growth rate in 2019 and 3.7-percent systemwide, which is slightly above consensus estimates of 3.5 percent and 3.4 percent, respectively.

In addition to expectations for in-line performance, Texas Roadhouse faces food inflation risks, Setyan said. It is likely that 2019 will see lower beef production, and commodity inflation could come in higher in 2019 than 2018, he said.

This puts the Street's expectations of 20 basis points of COGS (cost of goods sold) leverage at risk next year, along with the Street's model of labor expenses of 32.7 percent, Setyan said. 

Texas Roadhouse does boast industry-leading transaction growth and unit growth, which warrants a premium valuation versus the entire casual dining sector, according to Wedbush. The firm's $67 price target is based on a 20 times P/2019E multiple, which is a 30-percent premium versus its peers.

Price Action

Texas Roadhouse shares were trading down 2.22 percent at $73.50 premarket Monday. 

Related Links:

3 Reasons Why RBC Craves Texas Roadhouse's Stock

Texas Roadhouse's Upside Potential Is 'Limited,' JPMorgan Says In Downgrade

Photo by Niceckhart/Wikimedia. 

Latest Ratings for TXRH

DateFirmActionFromTo
Sep 2018Stifel NicolausMaintainsBuyBuy
Sep 2018BMO CapitalDowngradesMarket PerformUnderperform
Sep 2018BTIG ResearchDowngradesBuyNeutral

View More Analyst Ratings for TXRH
View the Latest Analyst Ratings

Posted-In: beef CAsual RestaurantsAnalyst Color Downgrades Price Target Restaurants Analyst Ratings General Best of Benzinga

 

Related Articles (TXRH)

View Comments and Join the Discussion!
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

EUR/USD Forecast: Yet Another Dead-Cat Bounce? The Downside Is More Appealing

GBP/USD Forecast: Sterling Unmoved By The UK Manufacturing Output Falling Into Negative