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BJ's Restaurants Outpaces Peers: Stock Surges 39% in a Year

Zacks Equity Research

BJ's Restaurants, Inc. BJRI has been one of the most impressive restaurant stocks of late. In fact, the company hasthe potential to sustain the momentum in the near term. Shares of the company have gained 39.1% in the past year, significantly outperforming the industry’s collective decline of 2%.

Ongoing upward earnings estimate revisions also reflect optimism in the stock’s earnings prospects. Over the past 60 days, the Zacks Consensus Estimate for earnings in 2019 have moved up 3.9%.

Besides carrying a Zacks Rank #2 (Buy), the restaurant has a VGM Score of B. Back-tested results show that stocks with a VGM Scores of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, handily outperform others.

Let’s delve deeper into the factors that make this stock a solid pick.


Cost Cutting Efforts to Favor Earnings

BJ’s Restaurants is committed to improve operating margins through cost-containment initiatives. The company is focusing more on its smaller prototype restaurants that cost roughly $1 million less than the prior prototype. This helps in reducing operating costs. These new restaurants generate higher margins due to lesser food wastage and improved labor productivity.

Given its operational efficiency and launch of new higher return restaurant prototype, the company is likely to maintain its margin growth. Moreover, the company initiated an additional $5 million of efficiency savings in areas such as sourcing, distribution, supplies and maintenance in 2017.

We believe that such initiatives will help the company immensely to witness earnings growth. In 2018, BJ’s Restaurants’ earnings per share are expected to grow 66.7%. The consensus estimate pegs 2019 earnings at $2.42, suggesting year-over-year growth of 3.2%.

Sales Building Initiatives Bode Well

BJ’s Restaurants has implemented several major sales-building initiatives, which have contributed positively to the company’s results over the past few quarters. With increased focus on productivity and efficiency and plan of balanced restaurant opening, the company is heading toward near and long-term operating success.

Notably, off-premise sales increased to 8.7% of the company’s revenues in the third quarter of 2018. Further, BJ’s Restaurants also expects this channel to grow by at least 50% over the next several years. In 2019, the company intends to open seven to nine restaurants.

Meanwhile, continual innovation across menu offerings and strong technology-driven initiatives, including digital ordering, have been positively contributing to the company’s traffic and sales. Backed by such robust sales-building initiatives, the consensus estimate for 2018 sales is pegged at $1.11 billion, reflecting growth of 8% from 2017. For 2019, revenues are projected to rise 5% year over year.

Shareholders to Gain from Higher Returns

BJ’s Restaurants delivered ROE of 16.7% in the trailing 12 months compared with 7.5% recorded by its industry. This supports the company’s immense growth potential and indicates that it reinvests more efficiently compared with peers. In the third quarter of 2018, the company raised the quarterly cash dividend by 9.1% to 12 cents.

Other Stocks to Consider

Investors can take a look at the following restaurant stocks, all of which carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings for Darden DRI, Cracker Barrel CBRL and Domino’s DPZ for 2019 are expected to increase 17.7%, 1.3% and 11.1% respectively.

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