After a rough 2019 for Texas Roadhouse Inc (NASDAQ: TXRH), one analyst said Monday it’s time for investors to start buying the dip.
Raymond James analyst Brian Vaccaro upgraded Texas Roadhouse from Outperform to Strong Buy and raised his price target from $63 to $68.
Vaccaro said impressive sales comps and improving labor costs have Texas Roadhouse set up well for 2020. In addition, he said concerns over beef price inflation are overdone.
While Choice grade tenderloin prices were up 11.4% in the fourth quarter, Vaccaro said Texas Roadhouse buys Select grade tenderloin, which had an average price decline of 6.7% in the quarter.
As a result of this beef deflation, Vaccaro raised his Q4 EPS estimate from 52 cents to 55 cents, three cents above consensus.
After a 14.9% decline over the past year, Vaccaro said Texas Roadhouse is one of his top quality stock picks of 2020.
“We're optimistic that renewed labor cost discipline combined with higher menu pricing can stabilize margins, which, combined with expected continued comp outperformance, should drive improved EPS growth into 2020,” Vaccaro wrote in the note.
After the lackluster 2019 performance, Texas Roadhouse is now trading at around 21 times forward earnings. While that earnings multiple is not particularly low compared to its peer group, it is on the low end of the stock’s three-year range of between around 21 and 26.
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