Texas Roadhouse's Risk-Reward Is Balanced, BMO Says In Downgrade

Casual restaurant chain Texas Roadhouse Inc (NASDAQ: TXRH) has seen its stock outperform the S&P 500 index by more than 2,000 basis points since June 2017. Investors may want to hold off on buying the stock at these levels, according to BMO Capital Markets. 

The Analyst

BMO's Andrew Strelzik downgraded Texas Roadhouse's stock rating from Buy to Market Perform and raised the price target from $60 to $64.

The Thesis

A downgrade of Texas Roadhouse is based mostly on the stock's valuation, as the company's fundamentals remain "attractive," Strelzik said in a Tuesday note. 

The Texas-themed restaurant should continue to benefit from improving industrywide trends, favorable beef prices and tax benefits, the analyst said. 

Texas Roadhouse could sustain a 5-percent same-store sales growth rate in 2018 and 2019 and earn $2.90 to $3 in 2019, Strelzik said. But when applying the stock's historical P/E average of 23-23.5x ,the upside scenario for the stock is just $68 to $71, he said. 

Beyond 2019, Texas Roadhouse's investment profile remains unchanged, the analyst said. Over the long term, the company's strategy of focusing on food quality, service and undercutting rivals on pricing will justify "meaningful outperformance" in same-store sales and traffic trends, according to BMO. 

At $64 per share, the risk-reward profile for Texas Roadhouse stock is balanced, Strelzik said. 

Price Action

Texas Roadhouse shares were down 2.63 percent at $61.38 at the time of publication Tuesday. 

Related Links:

Longbow Downgrades Texas Roadhouse Ahead Of Q1 Report, Stays Positive On Long-Term Fundamentals

Texas Roadhouse Is A 'Model Of Consistency,' Analyst Says

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