For Immediate Release
Chicago, IL – March 11, 2020 – Zacks Equity Research Shares of Texas Roadhouse TXRH as the Bull of the Day, Hamilton Beach Brands HBB as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Beyond Meat BYND, McDonald’s MCD and Starbucks SBUX.
Here is a synopsis of all five stocks:
Bull of the Day:
Texas Roadhouseposted a solid beat on February 20 and that made analysts revise their estimates higher. Thanks to the beat, the stock is a Zacks Rank #1 (Strong Buy) and today it is the Bull of the Day. Let’s take a closer look at the beat and why this stock has the highest Zacks Rank.
Texas Roadhouse operates casual dining restaurants in the United States and internationally. The company operates and franchises Texas Roadhouse and Bubba’s 33 restaurants. As of June 25, 2019, it owned and operated approximately 498 restaurants and franchised an additional 93 restaurants. Texas Roadhouse, Inc. was founded in 1993 and is based in Louisville, Kentucky.
Recent Earnings Report
After the close on February 20, TXRH posted earnings per share of $0.61 and that was $0.09 ahead of the Zacks Consensus Estimate. Revenues came in at $725.2M, an increase of 19% from the prior year and also beat estimates.
This was the third consecutive beat for TXRH, and each beat has been better than the last. The first time the company topped the Zacks Consensus Estimate there was a positive earnings surprise of 1.6%. The next beat was much better coming in at 13% ahead of the consensus. The most recent beat as 17% ahead of the estimate and investors love to see bigger beats.
Estimates have all moved higher following the recent beat. The current quarter has jumped from $0.80 to $0.85. Next quarter has a two cent move as well.
The full year numbers for TXRH are moving higher as well. The 2020 Zacks Consensus Estimate jumped from $2.57 to $2.72. The 2021 number also moved higher to $3.01 from $2.81 over the past week.
At 24x forward earnings, TXRH is not a cheap stock. Value investors will probably take a pass on this stock as it has a 4.9x price to book multiple. TXRH just posted 19% topline growth, but the price to sales multiple is only 1.6x. I see good growth in margins over the last three quarters and given the pull back in the broader market investors should give this stock a deeper look.
Bear of the Day:
Hamilton Beach Brandsis a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today. Let’s take a look at why this stock has the lowest Zacks Rank and if investors should dig a little deeper into this name.
Hamilton Beach Brands sells small electric household and specialty housewares appliances. It offers air fryers, blenders, coffee makers, food processors, indoor electric grills, irons, juicers, mixers, slow cookers, toasters, and toaster ovens. T Hamilton Beach Brands Holding Company was founded in 1904 and is headquartered in Glen Allen, Virginia.
When I take a look at the last four reports, I don’t like what I see. The company has missed the Zacks Consensus Estimate in each of the last four quarters.
On the bright side, the negative earnings surprise is headed the right way over the last three quarters.
Those negative surprises went from -333% to -71% to -1.4%. That is a move in the right direction, but those are still pretty big misses.
The most recent earnings report came on February 26 and the stock has sold off since that time. There has been a market wide decline on Covid19 fears, but the miss didn’t help things either.
I see the company reporting earnings of $1.43 when $1.45 was expected. That two cent miss translated into a negative earnings surprise of 1.4%.
As a result of the miss, estimates have moved lower. There really wasn’t that much movement, but there was enough to move the Zacks Rank to the lowest level. I see the full year 2020 numbers moving from $1.90 to $1.85.
The current quarter and the next quarter are holding still at $0.09 and $0.18 respectively.
I see a really good valuation on this stock, with a 6x forward earnings multiple. The price to book of 2.8x is less than the 3x that is a general cut off for value investors as well. Problem here is the sales growth, which was -14% on a year over year basis last quarter and a price to sales multiple of 0.23x which tells me that the market doesn’t reward the stock for incremental sales the same as it would if the price to sales was 1.0x or more.
Net Margin has slipped from 2.78 to 1.8 to -0.53 over the last three quarters, so until that turns around investors might want to look elsewhere for an electronics play.
What to Do with Beyond Meat (BYND) Stock
Beyond Meat shares have been a roller coaster and for those investors still hanging in there, let me say, congratulations!
This isn’t a regular stock or a regular company. There are some really big positives here that come only once in a while and topmost on the list is the fact that this stock feeds new trends that have taken a while to develop. These trends would be things like wanting to protect the environment, be kind to animals, go vegan/vegetarian, go hormone-free, chemical-free, GMO-free, etc all for the sake of a healthy body. These aren’t concerns that will fizzle out in the next few years. And we finally have an instrument that can help us put a value to it.
And it doesn’t stop there. Not only is this company a play on these trends, but it’s also the first one on the scene. True, there’s some competition from Impossible Foods and vegan/combination meat both from traditional meat producers and otherwise. But while Impossible always comes up in any conversation about Beyond, there are key differences between them. So it’s also true that none of the others have managed Beyond Meat’s scale and popularity.
Its products are now available at nearly all major U.S. grocery chains. You also find them at over 77,000 restaurants and food service outlets. They’ve also expanded to over 65 countries across North America, Europe and Asia.
So naturally, revenue growth has been phenomenal from just $13 million in the first quarter of 2018 to $98 million in the fourth quarter of 2019 (up 654%). Revenue was up 239% last year. And of its two distribution channels, retail (which is basically grocery chains like Costco, etc that carry its products) grew 199% in the fourth quarter while restaurant and food service grew 223%. So this is huge momentum.
Growth will likely come from existing distribution, further penetration into international markets, as well as possible new partnerships with McDonald’s, Starbucks and others. China remains a little uncertain because of the coronavirus, but management appears confident that China plans remain on track.
Of course this kind of growth means a constant pressure on capacity. So the company must keep investing. Management expects to have capacity for a billion dollars’ worth of product by year-end, by which time it will also have 11 co-packers. At the beginning of 2020, it could do $700 million worth with six co-packers.
So what to do with a stock that is basically a trendsetter? What to compare it with? These become increasingly difficult questions to answer.
On one side are meat producers (who are also making combination products) and meat lovers who are determined to keep this market alive. On the other are vegan and lab meat producers, all of which are struggling with things like finance, production efficiencies, scale and/or survival, depending on how much popularity and mind share they’ve managed to garner.
So the meat lobby is the greatest challenger to the other side. They have the money to make this a long and difficult battle. Moreover, most already have a plan to target customers who may want to eat less meat. A company like Beyond Meat, which is vegan, GMO free, soy-free, hormone-free, artificial ingredient-free can probably counter any argument against meat producers. However, it will materially drive up marketing cost.
And being the front-runner amongst its own kind and having achieved a certain level of success, it should also be financially sounder than its smaller peers. If it wasn’t investing so aggressively in the business, the company would be making a tidy profit now.
The shares are down 26% in the last month, but that’s still up 16% in the last three months and up 32% over the past year. While it’s hard to say for sure what exactly any stock will do, I do expect short term pain from capacity expansion and higher marketing cost, offset by gains from new deals and international expansion. So if you’re not in this for the long haul, not playing the long-term trends, it’s probably best to cash out while you still see some gains. For the longer-term, this remains a hot stock.
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Starbucks Corporation (SBUX) : Free Stock Analysis Report
McDonald’s Corporation (MCD) : Free Stock Analysis Report
Texas Roadhouse, Inc. (TXRH) : Free Stock Analysis Report
Hamilton Beach Brands Holding Company (HBB) : Free Stock Analysis Report
Beyond Meat, Inc. (BYND) : Free Stock Analysis Report
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