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Texas Roadhouse: Steak and Country Music

04/12/2019 5:00 am EST

Focus: CONSUMER

Hilary Kramer

Editor, GameChanger Stocks

Texas Roadhouse (TXRH) was founded in 1993 when founder Kent Taylor, who is the company’s current CEO and chairman, opened the company’s first restaurant in Clarksville, Indiana, notes Hilary Kramer, growth stock expert and editor of GameChangers.

His vision of offering a fun, family-centered steakhouse with affordable prices proved to be a good one, as the company now operates 582 restaurants in 49 states in nine countries. The company owns 489 restaurants, including 25 with the “Bubba 33” nameplate.

It also has franchised 69 domestic and 22 international restaurants. Texas Roadhouse also tries to offer strong service and a fun atmosphere. To this end, the company keeps the table-to-server ratio low and restaurants are designed to reflect a rustic southwest theme. They even have juke boxes that play country music hits.

Bubba 33 was a concept that was started by the company earlier in the decade. It is a family friendly sports bar restaurant which offers pizza, burgers and craft beers. The restaurants feature walls that are lined with televisions playing sports events and music videos. Other parts of the walls are decorated with sports jerseys, neon signs and other local flair.

Strong consumer acceptance of the company’s value-oriented strategy has driven growth for TXRH. From 2014 through 2018, revenues increased from $1.56 billion to $2.43 billion, or registered an annual average increase of 11.27% per year.

I think that TXRH’s profitability improvement in 2019 will send its stock higher. I expect earnings per share to grow to $2.20 from $2.50, with 3% of the gains coming from an extra week in the fiscal year. At 24.5 times this year’s estimate, the stock is very attractively valued considering its growth history and outlook.

The company also boasts a very strong balance sheet, with $208 million in net cash. This comes out to just under $3 a share and this performance is helping the company fund dividend increases. While TXRH is not a dividend play, its 1.94% yield will add to our total returns.

Texas Roadhouse is a company with growth still ahead of it. This is a good time to buy shares while its valuation is very reasonable and much of the growth stock universe looks extended. Buy under $65. My target is $75.

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