On Nov 13, Zacks Investment Research upgraded BJ's Restaurants, Inc. (NASDAQ:BJRI) to a Zacks Rank #1 (Strong Buy). BJ's Restaurants’ has been witnessing rising earnings estimates on the back of strong third-quarter results and improving guest traffic at its restaurants. Further, shares of BJ's Restaurants rose nearly 39% in the past 30 days.
Why the Upgrade?
On Oct 23, BJ’s Restaurants Inc.’s third-quarter 2014 earnings of 23 cents per share comfortably beat the Zacks Consensus Estimate as well as the prior-year figure of 13 cents by 76.9%. Revenues in the reported quarter also grew 9.7% year over year to $206.5 million, due to comps growth. However, revenues lagged the Zacks Consensus Estimate of $208.0 million by a meager 0.9%.
Comps in the quarter increased 0.3%, which compared favorably with a decline of 2.2% in the prior-year quarter. This was primarily due to a 0.7% increase in guest counts, partially offset by a lower average check.
Restaurant level margins were 17.6%, up 130 basis points year over year, mainly due to the higher year-over-year sales combined with the cost containment and Project Q initiatives, which focused on improving kitchen productivity while enhancing food quality.
Further, we are also encouraged by the company’s decision to launch its smaller prototype restaurants (which requires lower investments) in various markets. BJ's Restaurants is steadily moving towards its target of opening 11 new restaurants, based on the new restaurant design, in 2014. Till date the company has opened 10 restaurants, with the last opening scheduled to take place next week Fort Myers, Florida.
In our view, with commodity costs staying at an all time high, lower investment by the company will be beneficial to its margins. And the fact that the company is focusing on its expansion plans without sacrificing margins is laudable. In fact, we believe the smaller prototype restaurant will be the primary driver for the company’s long-term goal of a restaurant-level margin of 19%.
Other Stocks to Consider
The following companies with a favorable Zacks Rank that are worth considering include DineEquity, Inc. (NYSE:DIN), Ruby Tuesday, Inc. (NYSE:RT) and Domino's Pizza, Inc. (NYSE:DPZ). While DineEquity and Ruby Tuesday carry the same Zacks Rank as BJ’s Restaurants, Domino's Pizza sports a Zacks Rank #2 (Buy).