Market Overview

Red Robin Poised To Disappoint Street In 2020, BofA Says In Downgrade

Red Robin Poised To Disappoint Street In 2020, BofA Says In Downgrade

Street expectations call for hamburger chain Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) to modestly grow EBITDA in 2020 — an assumption Bank of America Merrill Lynch said is unlikely to play out.

The Analyst

Gregory Francfort downgraded Red Robin Gourmet Burgers from Neutral to Underperform with an unchanged $30 price target.

The Thesis

Red Robin reported second-quarter results that included an $11.6-million tax benefit which drove all of the EBITDA beat of $25.4 million versus expectations of $25.3 million, Francfort said in a Tuesday downgrade note. (See his track record here.)

Restaurant-level margins were short of expectations, while same-store sales were better than expected, but still negative, falling 1.5% versus expectations of a 2% decrease, the analyst said. 

During the quarter, the company also saw a deceleration in traffic due to a shift away from its value menu offering, Francfort said. While this may have been a prudent strategy years ago, the absence of traffic traction implies the restaurant will struggle to generate long-term traffic — a necessity for the health of the brand, he said.

Analysts continue to expect EBITDA to grow next year, but the only way to do so is through a "very material" comp improvement, which is unreasonable at this point, according to BofA. 

Price Action

Red Robin shares were falling 5.96% to $32.34 at the time of publication Tuesday. 

Related Links:

Red Robin Gourmet Burgers Reports Q2 Earnings Beat

BTIG: Vintage Capital's Offer To Red Robin Undercooked

Photo via Wikimedia

Latest Ratings for RRGB

Nov 2019MaintainsHold
Aug 2019DowngradesNeutralUnderperform
Aug 2019MaintainsEqual-Weight

View More Analyst Ratings for RRGB
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Gregory FrancfortAnalyst Color Downgrades Price Target Restaurants Analyst Ratings General Best of Benzinga


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NXTCBank of AmericaReiterates89.0
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