Market Overview

Texas Roadhouse Serves Up Juicy Quarter, But Street Isn't Buying The Sizzle

Texas Roadhouse Serves Up Juicy Quarter, But Street Isn't Buying The Sizzle

Texas Roadhouse Inc (NASDAQ: TXRH) reported third-quarter results, which was mostly cheered by Street analysts but sparked a debate if investors should buy the stock.

Q3 Sizzles

Texas Roadhouse's quarter report is highlighted by a "solid" comps beat of 4.4% versus 4.3%, a "sizeable" EPS beat of 52 cents versus 46 cents, along with the first store-level margin expansion seen in three years, Stephens analyst Will Slabaugh said.

The company also showed its 38th-consecutive quarter of traffic growth while simultaneously reducing labor hours, cost of goods sold, operating expenses and G&A expenses.

Juicy, But Not Beefy Enough

Texas Roadhouse affirmed its ability to deliver superior comps versus its rivals, KeyBanc Capital Markets analyst Eric Gonzalez said. However, the report fell short of justifying the stock's premium valuation as the company failed to show a track record of EPS upside. Also, strong exposure to beef prices could result in earnings volatility.

"3Q19 results did little to change our view that TXRH stock is worthy of a premium valuation, so long as it can manage cost pressures," Gonzalez wrote in a note.

Similarly, UBS analyst Dennis Geiger said the restaurant chain's report makes the case for continued momentum and outsized sales and earnings. However, investors should overlook the near-term 2020 outlook and focus more on broader casual dining industry sales and cost pressures.

Related Link: Texas Roadhouse Analysts Pick At Q2 Results

Buying The Sizzle

Texas Roadhouse's report removes a "key overhang" in the stock as the company showed labor productivity favorably impacted both the third quarter and its outlook, Raymond James analyst Brian Vaccaro said. In addition, the company showed a sustainable powerful comp gains which carried over in September and October amid a slightly negative industry backdrop.

In addition, a stock price of $55 implies a multiple of 21 times 2020 earnings which is near the low-end of a historical valuation range of 20 to 26 times.

"We believe TXRH can outperform from current levels," Vaccaro wrote in the upgrade note.

'Reassuring' Next Course

Management provided its initial 2020 outlook that should be "reassuring" to investors, Baird Equity Research analyst David Tarantino said. The company's guidance for more than 6% unit growth and food inflation of 1% to 2% (30% to 40% of basket costs locked in) is "much better than recent fears" although could be viewed at with some skepticism.

Ratings And Price Targets

  • Stephens maintains at Overweight, $70 price target.
  • KeyBanc maintains at Sector Weight.
  • UBS maintains at Neutral, price target lowered from $62 to $60.
  • Raymond James upgraded from Market Perform to Outperform, new $63 price target.
  • Baird maintains at Outperform, $65 price target.

Shares of Texas Roadhouse were trading up 18.66% Tuesday at $59.53.

Latest Ratings for TXRH

Nov 2020BairdUpgradesNeutralOutperform
Nov 2020WedbushMaintainsOutperform
Oct 2020BMO CapitalMaintainsMarket Perform

View More Analyst Ratings for TXRH
View the Latest Analyst Ratings


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