Motley Fool also likes this restaurant stock, citing its “increasing foot traffic (better than its competition) and its expanding locations (recently added 33).
Texas Roadhouse, Inc. (TXRH)
From Stock Pickers Digest
Texas Roadhouse, Inc. (TXRH; TSINetwork Rating: Extra Risk) is a full-service, casual-dining restaurant chain with 549 locations spread across 49 U.S. states and seven foreign countries. Its restaurants operate under two banners—Texas Roadhouse (427 locations) and Bubba’s 33 (22). Most outlets are company-owned.
Founded in 1993, the Texas Roadhouse chain offers moderately priced, full-service dining. It specializes in hand-cut steaks cooked over an open grill. Ribs, seafood, chicken, pork chops, pulled pork and vegetable plates are also on the menu, along with hamburgers, salads and sandwiches. Texas Roadhouse gives its guests a free unlimited supply of in-shell roasted peanuts and fresh-baked dinner rolls.
Bubba’s 33 is a family-friendly sports restaurant offering an assortment of wings, sandwiches, pizza and burgers. That includes its signature 33% bacon-grind patty. In addition, the chain offers an extensive selection of draft beer.
In the last five years, the company’s overall revenue has increased 57.1%, from $1.4 billion in 2013 to $2.2 billion in 2017. Earnings have risen 63.6%, from $80.4 million (or $1.13 per share) in 2013 to $131.5 million (or $1.84 per share) in 2017.
For the most-recent quarter, ended December 31, 2017, revenue for Texas Roadhouse rose 12.5%, to $545.1 million from $484.7 million a year earlier. Same-store sales increased 5.8% for company-owned restaurants and 4.7% for franchise locations in the U.S. The company’s earnings jumped 25.4%, to $28.6 million, or $0.40 per share, from $20.7 million, or $0.29, a year earlier. Those gains are mostly due to U.S. tax reforms.
Texas Roadhouse fuels its growth by adding new outlets. In 2017, it opened 27 company-owned restaurants and five franchise locations. In the most-recent quarter, alone, it added seven company-owned restaurants and two international franchise locations.
The company is well-positioned to continue its expansion: it has long-term debt of just $52.0 million and holds cash of $151.0 million, or $2.12 per share.
For 2018, Texas Roadhouse plans to spend $170 million to open 30 additional company-owned restaurants.
The stock trades at a somewhat high 26.4 times the forecast 2018 earnings of $2.38 a share. Like most U.S. restaurant chains, the company is vulnerable to a slowdown in business when consumer confidence is weak, and families cut back on eating out. Labor costs for all restaurant operators also continue to move up.
However, it also benefits from today’s stronger economy and high employment. As well, while it has chosen to slowly roll out its Bubba’s 33 concept in order to cut risk, that brand has significant potential to broaden the company’s customer base. Consistency in the company’s food quality and customer experience should also continue to pay off.
With the March 2018 payment, Texas Roadhouse raised its quarterly dividend by 19.0%, to $0.25 from $0.21. The shares now yield 1.6%.
Texas Roadhouse is a buy.
Patrick McKeough, Stock Pickers Digest, www.tsinetwork.ca, 888-292- 0296, May 2018