BJ's Restaurants Initiated At Hold By Canaccord

Canaccord Genuity started coverage of BJ's Restaurants, Inc. (NASDAQ: BJRI) with a Hold rating, primarily on a slowdown in top-line trends and margins have likely peaked near-term.

"While we acknowledge a historically attractive valuation and unit growth profile, the deceleration in BJRI's sales trends in recent months gives us pause. Accordingly, we believe that shares will likely be range bound until BJRI's comps/traffic show stabilization/improvement," analyst Lynne Collier wrote in a note.

The company's comps and traffic has turned negative in recent months. BJ's reported a second quarter same-store sales decline of 0.2 percent, below Street expectations of +0.7 percent but exceeding industry benchmarks.

However, the analyst is concerned that sales further slowed in early third quarter, with same-store sales and traffic declining 2 percent in July. For the third quarter, Collier expects same-store sales of -2.5 percent, below the Street at -1.5 percent.

Moreover, the analyst believes the company's restaurant-level margin of about 20 percent in 2015 has likely peaked near term based on higher labor, increased advertising and a greater focus on value.

Collier expects EPS of $1.82 (+10 percent year-over-year) for 2016 and $2.10 for 2017, which is slightly below the Street view of $1.85 and $2.13, respectively. The key model assumptions for 2016 include SSS of -0.5 percent, 19 new company restaurants, and a 19.6 percent restaurant-level margin.

At time of writing, shares of BJ's Restaurants were up 0.17 percent to $40.49. The target price of $43 reflects 6 percent upside potential and is based on 8.0x 2017 EBITDA estimate of $141 million.