RRGB Red Robin Gourmet Burgers Inc

RRGB 040612

Red Robin Gourmet Burgers (RRGB)

I have dined at a couple Red Robins in my day and had no idea they were a public company until about a week ago.  You’d think after ranking as the #1 Best Burger (chain stores) 3 years in a row from Zagat; they would be on my radar being that I’m a connoisseur of fine ground beef in a bun and a stock junkie. 

After listening to their commercial about 20 times I had their chime in my head, but it was a random trip out to Garland Texas that introduced me to one of the 462 restaurants in the chain.  It was worth the trip if you like burgers and other items.

On the surface, my biggest complaint would be obviously be visibility, unlike competitors like Chipotle Mexican grill, which seems to be everywhere you look (physically and in financial circles), Red Robin is a bit harder to find.  Red Robin does have diversity in its offerings with everything from ribs to shrimp tacos to fish and chips, which add to its attraction. 

When you compare the two, Chipotle (CMG) is currently trading at more than 50 times forward earnings, while Red Robin is at about 19 times.  Perhaps there is still some value in this unique burger chain. 

Company Description & Developments
Red Robin currently operates more than 460 restaurants across the United States and Canada. The company is also expanding through its franchise strategy. Currently, the restaurant chain is 70% company operated and 30% franchised.

The company expects to roll out 13 to 15 restaurants in 2012, including both full-sized restaurants and smaller prototype units. Small-size restaurants will likely drive growth in non-traditional locations and also improve return on invested capital. Red Robin’s units are mostly located in California, Colorado, North Carolina, Ohio, Virginia, and Washington. The company expects to open around 50% of its targeted restaurants in 2012 in these states. While the company seems comfortable expanding in familiar ground, we also foresee management expanding in relatively new markets to avoid market saturation.

Red Robin targets new unit investment/development to be in the range of $50–$60 million in 2012t. It also plans to increase investments in equipment and store remodeling.

Financial Profile
RRGB is a small-cap (526 million) company that is trading at about 19 times forward (expectations for next quarter) earnings.  RRGB recently became a Zacks Rank 1 strong buy on April 4th.

Total 2011 sales increased 7% compared to full year 2010; earnings increased from $0.46 in FY2010 to $1.34 in FY2011, over 290%!  They are expected to earn $1.54 for the full year (FY2012) according to the Zacks Consensus Estimate. 

Earnings Estimates
Of the 9 analysts who cover Red Robin, the consensus is for the company to grow earnings by 21.4% in the current year (FY2012) and roughly 16.5% in FY2013.  RRGB has blown away analysts’ expectations to the upside 4 quarters in a row; their average surprise was a positive 54.38% over the last year.   

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were9 days ago for the current and next quarter as well as FY2012 and FY2013.  RRGB is expected to earn 67 cents when they report on May 17th.

Market Performance & Technicals
Red Robin’s stock price has been in a clean, strong bullish channel since October of 2011.  In that time shares have gained 81%, hitting a high of about $38.  Recently shares have pulled back slightly, but still remain in an overall bullish trend.

Support comes around the $35 level, then below that more support will come at the 50 day moving average of $34.68.  The 200 day moving average stands quite a bit lower at $30.70, which also can be seen as support and a key level in the current trend. 

Use caution with RRGB as volume is on the low side, trading an average of about 200,000 shares daily.

RRGB has outperformed the S&P 500’s performance over the past year by more than 25%.  It outpaced it by over 14% in the past 3 months, but has become more correlated in the last month only ahead of the index by 1.5%.

While the prospects and performance may be good for this stock, the low volume and sensitivity to consumer trends could make it a bit more volatile.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

 
CHIPOTLE MEXICN (CMG): Free Stock Analysis Report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
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