By Michael Elkins
Stifel downgraded Texas Roadhouse (NASDAQ:TXRH) to a Hold rating (from Buy) and cut the price target on the stock to $105.00 (from $110.00) as analysts are less confident in the company’s ability to bring a meaningful upside to 2023 EPS estimates.
Texas Roadhouse reported 4Q SRS growth of 7.3%, up ~30% to pre-COVID levels but still missing the Street’s 8.6% estimate. The company also reported a restaurant margin of 14.5%, down 130 bps YoY and well below the Street mean of 16.1%.
Management updated certain components of the company's 2023 outlook, including store week growth of 6% (was 5%, now incorporating eight acquired franchise restaurants purchased at the beginning of the quarter), 25 to 30 Texas Roadhouse and Bubba's 33 company restaurant openings, and an effective income tax rate of 14% (was 15%).
“We remain confident in the company's 2023 sales outlook and long-term unit growth prospects. However, we are less confident there is meaningful upside to our 2023 EPS estimate of $4.55. Based on the company's comments, it seems unlikely that better-than-expected comp sales and the corresponding leverage will offset wage and commodity inflation without more aggressive menu pricing,” said Stifel.
Stifel left their 2023 EPS estimate unchanged at $4.55 (Street was $4.66) because they expect the restaurant margin to be flattish YoY.
Shares of TXRH are down 0.87% in mid-day trading on Friday.