Texas Roadhouse (TXRH) could benefit from steady customer demand, market-share gains, easing alcohol pressure and higher carryout sales, while beef costs remain the main risk to earnings, RBC Capital Markets said in a note Monday.
The investment firm expects Q2 same-store sales to rise 6.5%, above market estimates, but sees a slight earnings miss because of higher general and administrative costs.
RBC said Texas Roadhouse may continue gaining customers from higher-priced steakhouses and grocery stores because its meals remain more affordable compared with many alternatives.
Annual beef inflation is expected to peak in Q2 as the company begins comparing costs against already higher prices from last year, though tight cattle supplies could keep costs elevated, according to the note. However, lower beef prices could lead to meaningful earnings upgrades because beef makes up about half of the company's cost of goods, the firm said.
Pressure from lower alcohol prices is expected to ease from Q3, which could support same-store sales, while carryout orders should continue adding to revenue and helping labor costs, the firm added.
RBC Capital Markets has an outperform rating and $210 price target on the stock.
Shares of Texas Roadhouse were up more than 1% in Tuesday trading.
Price: 203.75, Change: +2.71, Percent Change: +1.35
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