Two 59%+ winners, four above 25% in Aug – How this AI model keeps picking winners
On Tuesday, Texas Roadhouse (NASDAQ:TXRH) shares received an optimistic update from Morgan Stanley (NYSE:MS), as the firm's analysts upgraded the stock's rating from Equalweight to Overweight. The upgrade was accompanied by a price target increase to $213.00, up from the previous target of $205.00. The stock, currently trading at $178.95, has demonstrated remarkable strength with a 52.87% return over the past year, according to InvestingPro data.
The analysts attributed the upgrade to Texas Roadhouse's strong performance in the previous year, noting significant margin improvements. While acknowledging that the gains in the current year might be more modest due to less aggressive pricing strategies, the analysts expressed confidence that there is still potential for margin growth.
They also pointed out that their earnings per share (EPS) estimates are above the consensus due to these expected margin improvements. InvestingPro analysis reveals the company maintains a "GREAT" overall financial health score, with particularly strong profitability metrics despite operating with moderate debt levels.
Texas Roadhouse's clean balance sheet and the growth prospects of its Bubba's expansion were cited as additional factors that could support the stock's valuation. Morgan Stanley's analysts have also recently become more positive on the casual dining sector, especially noting that steak-focused restaurants have been performing well.
The report suggests that the fundamentals of the industry will continue to be favorable for Texas Roadhouse in 2025, with the analysts expecting the company to outperform in traffic compared to consensus estimates by approximately 100 basis points. This is anticipated to bolster their positive stance on the company's margin trajectory.
The new price target of $213.00 is based on a multiple of 16 times the projected CY26 EBITDA (earnings before interest, taxes, depreciation, and amortization), with the expectation that Texas Roadhouse can maintain a valuation above its historical average throughout the year.
Based on InvestingPro's Fair Value analysis, the stock appears to be trading near its fair value, with analyst targets ranging from $139.78 to $242.00. Subscribers can access 12 additional ProTips and a comprehensive Pro Research Report for deeper insights into Texas Roadhouse's valuation and growth prospects.
In other recent news, Texas Roadhouse has been demonstrating strong financial performance, with Loop Capital maintaining a Buy rating on the restaurant chain's stock due to consistent sales performance. The firm's analysts predict a significant upside to the company's comparable sales growth and earnings per share (EPS) estimates for the year 2025.
Texas Roadhouse also signed new employment agreements with key executive officers, including CEO Jerry Morgan and CFO Chris Monroe, providing leadership stability and potential cash incentive opportunities based on company performance metrics.
The company has also approved a dividend payment of $0.61 per share for its shareholders, reflecting its commitment to consistent financial returns. Texas Roadhouse reported robust financial performance in the third quarter, with an 8.5% increase in same-store sales and a revenue of approximately $1.3 billion. The company has also opened several new locations and plans to open approximately 30 new restaurants in 2025 and acquire 13 franchised locations.
Goldman Sachs initiated coverage on Texas Roadhouse stock with a Neutral rating, suggesting steady performance in the near future. The company anticipates a revenue growth of 13.5% and a diluted earnings per share increase of 32.5% to $1.26. Texas Roadhouse also updated its commodity inflation guidance to less than 1% for 2024, with a 2% to 3% forecast for 2025, and labor inflation projected at 4% to 5% for 2025.
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