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Texas Roadhouse, Inc. (NASDAQ: $TXRH)

Texas Roadhouse, Inc. Logo

Texas Roadhouse, Inc. (NASDAQ: $TXRH) is the parent company of Texas Roadhouse, a full-service steakhouse chain with locations all over the US specializing in southwestern and Texas-style cuisine. It also operates Bubba’s 33 and Jaggers, which serve a similar cuisine from its headquarters in Louisville, Kentucky.

TXRH Stock Performance

Texas Roadhouse, Inc. has carved out a unique niche within the restaurant sector. Its unique offering has ensured that its stock price consistently outperforms the S&P 500 for the last decade. TXRH stock is trading at $110.49 per share as of 11:36 AM EST Market Open on November 21, 2023.

However, the stock is still trading below its 52-week high of $118.16. The stock has had a great run in 2023, and it is up 18.59% year-to-date. Its price is above the 50-day and 200-day moving averages of $99.39 and $105.97, respectively, which are important indicators of a stock’s performance.

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Texas Roadhouse Earnings Report

Texas Roadhouse released its earnings report for Q3 2023 on October 26, 2023. It reported a revenue of $1.12 billion for the quarter, a 12.9% increase from last year. Additionally, restaurant sales were up 8.2% at company restaurants and up 7.8% at domestic franchise restaurants. EPS for the quarter was $0.95, a 2.6% rise from the same period last year.

However, the company missed analysts’ targets for EPS and revenue. It missed the target EPS of $1.05 by 9.50% and the revenue target of $1.12 billion by 0.18%.

Texas Roadhouse revealed it had opened nine company restaurants and four franchise restaurants for the quarter, including the first franchised Jaggers restaurant. It also reported that it had bought back 107,593 shares valued at 12.1 million.

In the outlook section, the company stated that it expected a 9.2% increase in company restaurant sales for Q4 compared to the sale time last year. Additionally, it was projecting a menu price rise of around 2.7% in Q4. It also projected a commodity cost inflation of 5%-6% and labor inflation of 6%-7%.

For FY 2023, the company expects to open up to 27 Texas Roadhouse and Bubba’s 33 company restaurants. It also projects an effective income tax rate of 13% and total capital expenditures of around $340 million.

Expansion Plans

Previously, Texas Roadhouse Inc. had been using the franchise model to expand its US operations. However, it has since embarked on a repurchase of all US franchises to operate them in-house.

It aims to use the franchise model for international expansion. The goal is to enter new markets without bearing the initial cost. If it proves successful, it can repurchase the restaurants and keep 100% of the profits.

Growth Prospects for Texas Roadhouse

The company’s revenue has increased 12% in the past decade, demonstrating strong cash generation. Its EBITDA to Free Cash Flow has averaged 120% in the past five years, which is quite high. The impressive growth has been complemented by a great Return on invested capital, which currently stands at 18%. It shows the company can generate value from the capital invested in growth.

Another impressive aspect of the company is its healthy debt levels. Its current Net Debt/EBITDA ratio is -0.27, which aligns with its 10-year average of -0.4. That signals that the company could repay its net debt with an EBITDA of just one year, which is important in a business environment plagued with high-interest rates and other macroeconomic pressures.

While Texas Roadhouse Inc. currently has great potential, it is still exposed to various risks. A major one is worsening economic conditions. Unless the macroeconomic conditions change, customers of Texas Roadhouse could cut spending at their restaurants. Additionally, the restaurant business is highly competitive, which could greatly affect profitability.

Stock Forecast

Stock analysts give Texas Roadhouse Inc. (TXRH) stock has a buy rating, indicating it will perform better than the overall stock market in the next 12 months. They give the stock a high price target of $144 and a low of $99. The average price target is $116.53, a 5.21% upside on the current price.

Should You Buy TXRH Stock?

Texas Roadhouse occupies a unique niche in the restaurant business. It has performed exceptionally well in the past decade, consistently performing better than the S&P 500 Index. Its debt levels are also great, and the return on invested capital is quite high at 18%.

Based on these figures, TXRH stock’s buy rating is accurate. However, as with any investment, always check other factors, such as macroeconomic performance and unexpected developments, when investing.

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