Texas Roadhouse (TXRH) is expected to post "slight upside" to Q1 same-store sales estimates, but elevated retail beef prices and limited visibility on margin improvement keep the risk/reward balanced, RBC Capital Markets said in a note Tuesday.
The brokerage forecasts same-store sales growth of 8%, above the 7.2% consensus, supported by strong underlying demand and a potential traffic boost from high retail beef prices. However, RBC said it expects margins to miss expectations, modeling earnings below consensus due to continued pressure from elevated beef prices.
Investor sentiment is "slightly negative" as feeder cattle inflation remains high and continues to weigh on profitability, with "little indication" of near-term supply improvement, according to the note. The brokerage noted that herd rebuilding can take up to 18 months to boost supply and ease pricing pressures, adding that it expects no improvement in beef supply in the Q1 report.
RBC has a sector perform rating on Texas Roadhouse and lowered its price target to $175 from $195.
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