What's Bigger in Texas? Earnings Will Be for this Restaurant Chain

Proven growth stocks rarely get cheap. When they do there's always a reason. Shares of all restaurant companies have been ravaged due to the lock-downs caused by the coronavirus response. Most are still operating via take-out, delivery and drive through channels, but earnings will definitely be down for the duration of the panic. Times like this require investors to determine long-term values rather than worrying about temporary profit plunges. If shares get too cheap it's time to buy, not sell. Texas Road House has been stellar over the past decade. From 2010 through 2019, EPS and cash flow per share tripled. Cash dividends were initiated during 2011 and raised each year since. Book value advanced almost 95% despite the company remaining debt-free. Shares outstanding decreased slightly via stock buybacks. Those fabulous stats pushed the stock from $10.60, at 2010's nadir, to a recent peak of $72.49. Thanks to coronavirus disruptions, though, TXRH fell momentarily to as low as $25.15 on Wednesday, before bouncing back a bit. Shortly after the open on Thursday, TXRH fetched $28.53. At that level continuous shareholders had still seen 120.4% total returns over exactly 10 years. I took advantage of the sharp pullback to buy some shares of this fine operator at greater than a 60% discount from its Feb. 16, 2020 high. Texas Roadhouse's clean balance sheet means it can ride out this uncertain period without undue stress. I've already received multiple e-mails from my local restaurant letting me know they're open and functioning, except for in-house dining. They've even set up an impromptu drive-thru service in their parking area. TXRH is a left to right stock. Every year had set a new EPS record. Dividends expanded year after year. The shares saw-toothed higher and higher as well. Its average price-to-earnings ran about 22.4-times while accompanied by about 1.93% in current yield. Many analysts still think TXRH might establish another record this year. I'm taking a more conservative view. Value Line had been expecting earnings per share of $2.65 for 2020. I'm using just a $2 projection pending further information on how long the dining room shutdowns will last. Barring worse than feared news, 2021 should re-establish growth once again. A reversion to just a typical multiple should conservatively take TXRH back to north of $58 by Dec. 31, 2021. Achieving that modest goal would provide better than a double plus dividends. That target will probably prove to be low. TXRH peaked between $67.70 and $75.20 during each of the three years 2018 through 2020 year-to-date. Yahoo Finance is in full agreement. It calls the shares undervalued and sees them rebounding to $67.45 within 12-months. That doesn't even include the, recently raised by 20%, 36-cent quarterly dividend. Independent research from Morningstar lists Texas Roadhouse as a 5-star, best buy. They feel the shares are worth $60.75 right now. It is truly rare to see a stock trading so far below its estimated present-day fair value. Until the coronavirus disrupted American life, TXRH hadn't changed hands below $30 since the first half of 2014. EPS that year were on track to hit $1.23 and the annual dividend was just $0.60 versus $1.44 at present. How crazy was the stock's ride on March 19, 2020? Shortly after the opening TXRH dipped to $27.55. At its daily high it was $35.40. TXRH finally closed at $34.63. Ignore the hype. Focus on the long-term. Buy these shares while the price is right. Take a stake now to pay for the steak you'll eat at Texas Roadhouse in the future.

What's Bigger in Texas? Earnings Will Be for this Restaurant Chain

If you're tired of stocks that are all hat and no cattle, take a stake now in Texas Roadhouse to pay for the steak you'll eat at the restaurant in the future.

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