On Friday, UBS updated its outlook on Texas Roadhouse (NASDAQ:TXRH) stock, increasing the price target from $200.00 to $210.00 and maintaining a Buy rating. The firm's analyst cited several positive factors from the company's third-quarter results, including continued strong same-store sales (sss) momentum and an expansion in restaurant margins. The company's guidance for 2025 was also noted to be more favorable than expected, particularly regarding commodity costs.
The analyst highlighted Texas Roadhouse's impressive traffic gains and accelerating trends quarter-to-date, despite challenges from the broader economic environment and tougher year-over-year comparisons. The company's guidance for 2025 includes commodity inflation of 2-3% and labor cost increases of 4-5%, with current pricing running at approximately 3.1% through the first quarter of 2025 and the possibility of additional pricing in the second quarter.
Texas Roadhouse has set a target to open approximately 30 company-owned units in 2025, mirroring its plans for 2024. The company also announced the acquisition of 13 franchise units, with an expected close in early 2025. This move is anticipated to be accretive to earnings per share (EPS). The focus remains on sustaining traffic momentum following another quarter of robust performance, and monitoring beef trends and labor costs in the coming year.
Despite the stock's approximately 50% increase year-to-date, the analyst believes that Texas Roadhouse's leading traffic momentum, multi-year earnings growth potential, and the prospect of returning to sustainable 17-18% margins provide room for further upside in the stock's value.
In other recent news, Texas Roadhouse, Inc. reported third-quarter earnings that fell short of analyst expectations, despite strong sales growth. The casual dining restaurant chain posted adjusted earnings per share of $1.26, missing the analyst consensus of $1.32. However, revenue met estimates, coming in at $1.27 billion, marking an 8.5% YoY increase. Notably, comparable restaurant sales rose by 8.5% at company-owned locations and 7.2% at domestic franchises.
Despite this upward trend in revenue, increased costs affected profitability, with the company experiencing wage and labor inflation of 4.7% and commodity inflation of 1.3% during the quarter. CEO Jerry Morgan attributed the continued traffic growth to the hard work of their operators.
In terms of future expectations, Texas Roadhouse has updated its 2024 outlook and provided initial guidance for 2025. For the year 2024, the company now expects commodity cost inflation of less than 1% and wage inflation of approximately 4.5%. For 2025, the firm projects a 5% store week growth and commodity inflation of 2% to 3%. These are significant recent developments for the company.
InvestingPro Insights
Texas Roadhouse's strong performance, as highlighted in the article, is further supported by recent data from InvestingPro. The company's market capitalization stands at $12.06 billion, reflecting its significant presence in the restaurant industry. Texas Roadhouse has demonstrated impressive revenue growth, with a 13.8% increase over the last twelve months as of Q2 2024, and an even stronger 14.51% growth in the most recent quarter.
InvestingPro Tips reveal that Texas Roadhouse has maintained dividend payments for 14 consecutive years and has raised its dividend for 3 consecutive years, showcasing its commitment to shareholder returns. This aligns with the company's strong financial position and growth trajectory mentioned in the article.
The company's profitability is evident, with an EBITDA of $597.98 million over the last twelve months and a robust EBITDA growth of 23.22%. This financial strength supports the analyst's positive outlook on the company's earnings potential and margin sustainability.
It's worth noting that Texas Roadhouse is trading near its 52-week high, with a price that is 98.21% of its 52-week high. This reflects the market's confidence in the company's performance and future prospects, as discussed in the UBS analysis.
For investors seeking more comprehensive insights, InvestingPro offers 16 additional tips for Texas Roadhouse, providing a deeper understanding of the company's financial health and market position.
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