Texas Roadhouse shares received a ratings upgrade from RBC Capital Markets on Friday, with analysts citing improving beef cost dynamics and resilient customer demand as key drivers for future earnings growth.
RBC upgraded the steakhouse chain to “Outperform” from “Sector Perform” and raised its price target to $210 from $180. Analysts argued that inflationary pressure on beef — historically one of the company’s largest margin headwinds — may begin to moderate over the coming quarters.
The brokerage noted that Texas Roadhouse recently lowered its full-year commodity inflation forecast to 6–7%, down slightly from prior expectations, after softer consumer demand for premium steak cuts helped reduce wholesale pricing pressure. RBC expects commodity inflation to peak in the second quarter before easing later in the year.
Analysts also highlighted signs that cattle and beef markets may be stabilizing. Feeder cattle prices have flattened since February, while futures markets indicate lower prices one year out. RBC said these trends could eventually translate into improved restaurant margins if beef costs continue to cool.
Beyond commodities, the report emphasized Texas Roadhouse’s strong traffic growth relative to much of the restaurant industry. The company’s comparable sales trends remained stable through the first five weeks of the second quarter despite broader concerns about inflation, higher gas prices, and weaker consumer sentiment.
RBC analysts said Texas Roadhouse’s pricing strategy may be helping it gain market share. Retail beef prices have surged far faster than menu prices at the chain, narrowing the cost gap between dining at home and eating out. The firm also said management believes Texas Roadhouse prices remain roughly 20% lower than some leading steakhouse competitors.
The report also pointed to growth in takeout orders as a new earnings opportunity. A recently completed kitchen display system rollout has expanded kitchen capacity and improved order execution, helping carryout sales rise to 14.6% of total sales in the first quarter.
During a virtual investor meeting hosted by RBC, company executives reportedly said they have not yet seen meaningful deterioration in consumer demand despite ongoing economic uncertainty. Management also reaffirmed its long-term restaurant margin target of 17–18%, while continuing to prioritize customer traffic and value pricing over aggressive menu price increases.
source https://www.investing.com/news/stock-market-news/rbc-upgrades-texas-roadhouse-on-easing-beef-cost-pressure-strong-traffic-trends-4693504
