Neutral on BJ's Restaurants - Analyst Blog
July 05 2011 - 8:39AM
Zacks
We maintain our long-term Neutral rating for BJ’s
Restaurants Inc. (BJRI). While we are optimistic on the
company’s unit growth potential and solid same-same restaurant
sales, the negative impact from commodity inflation as well as
increased competition compel us to remain on the sidelines.
We believe BJ’s Restaurants, which owns and operates a chain of
high-end casual dining restaurants in the United States, remains
well positioned to sustain its growth momentum while generating
improved earnings on the back of efficient operations and
innovative offerings.
The company remains committed to unit growth in 2011 and beyond,
and believes that there is room for at least 300 restaurants.
Additionally, the company boasts of strong financials with a
debt-free balance sheet.
However, like all restaurant companies, BJ’s is also susceptible
to higher input costs, which will lessen the magnitude of margin
rebound. The total commodity basket is expected to grow 4% in the
second half of fiscal 2011.
The company also foresees higher payroll taxes. In fact, many
states have already increased payroll taxes to help fund their
unemployment deficits. The first quarter felt the brunt of
the raised tax with hourly labor dollars increasing 4% over the
prior year.
Stiff competition from other players remains another concern for
BJ’s. In its core Californian market, BJ’s Restaurant face stiff
competition from Red Robin Gourmet Burgers Inc.
(RRGB), Jack in the Box Inc. (JACK), Sizzler and
Shakey's Pizza all of which have a strong presence in the region.
So far, Red Robin has more than more than 70 locations in
California while BJ’s Restaurants has 53.
Last but not the least, much of the positive attributes in BJ’s
stock is reflected in the current share price and there is only
limited scope for upside. Additionally, estimates have not budged
in the last 60 days, implying no near-term catalyst.
Based on the above fundamentals, we expect the shares to perform
in line with the market. BJ's Restaurants currently retains a Zacks
#3 Rank, which translates into a short-term Hold rating.
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
JACK IN THE BOX (JACK): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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