On Oct 4, we upgraded our recommendation on
Red Robin Gourmet Burgers, Inc
) from Neutral to Outperform based on better-than-expected
earnings growth in the second quarter of 2013.
Why the Upgrade?
In its recently concluded second-quarter 2013, Red Robin
reported adjusted earnings of 77 cents per share beating the
Zacks Consensus Estimate of 66 cents by 16.7% and the year-ago
quarter's earnings of 52 cents by 48.1%. Results in the quarter
benefited from decent top-line growth and margin expansion.
Following a better-than-expected margin performance in the
second quarter, the company expects restaurant operating margin
to be 21.3% in 2013, up from the previous estimate of 20.9%.
Following the release of the second-quarter results, the Zacks
Consensus Estimate for 2013 has gone up 2.3% to $2.27 per share
during the past 60 days. Similarly, the Zacks Consensus Estimate
for 2014 improved 3.5% to $2.66 per share during the same time
frame. With the Zacks Consensus Estimate for both the years
moving north, Red Robin now has a Zacks Rank #1 (Strong Buy).
Reason for Positive Bias
In addition to strong second-quarter results, Red Robin's
growth story also looks attractive. Since 1969, Red Robin has
remained one of the most recognized restaurant chains in the
casual dining segment. Initiated in 2011, the company's guest
loyalty program - Red Robin Royalty - now caters to 2.5 million
customers with a goal to boost traffic.
Unruffled by the prevailing economic weakness, the company has
been consistently witnessing a rise in its comps over the past
three years, which validates the company's strong
Red Robin has outlined a set of initiatives including menu
innovation, effective marketing strategy and remodeling programs
to reinvigorate its brands. Moreover, Red Robin is focused on
expanding company-owned unit to augment its business. Foray into
the smaller prototype restaurant concept, Red Robin's Burger
Work, is also a positive for the stock.
Other Stocks to Consider
Other players in the restaurant industry that look attractive
at the current level include
AFC Enterprises Inc.
Jack in the Box Inc.
Domino's Pizza, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
AFC ENTERPRISES (AFCE): Free Stock Analysis
DOMINOS PIZZA (DPZ): Free Stock Analysis
JACK IN THE BOX (JACK): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
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