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BJ's Restaurants Outruns Peers: Stock Surges 126% in a Year

Zacks Equity Research
Updated

BJ's Restaurants, Inc. BJRI is currently one of the most impressive restaurant stocks and has the potential to carry on the momentum in the near term as well. Therefore, if you haven’t taken advantage of the share price appreciation yet, it’s time you add this stock to your portfolio.

Shares of BJ’s Restaurants have gained a whopping 126% in the past year, significantly outperforming the industry’s collective growth of 6.8%. Ongoing upward earnings estimate revisions also reflect optimism in the stock’s earnings prospects. Over the past 30 days, current year earnings estimates have moved up 5%.

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

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

Top Line to Grow on Sales Building Initiatives

BJ’s Restaurants has implemented several major sales-building initiatives that have contributed positively to the company’s second-quarter sales. With an increased focus on productivity and efficiency, along with a plan of balanced restaurant opening, the company is heading toward near and long-term operating success.

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BJ’s Restaurants’ key needle-moving initiatives continued to drive substantial revenues in the second quarter of 2018. In 2017, the restaurant crew mastered advanced cooking methods and also became skillful in taking orders via hand-held ordering tablets. In fact, results from these initiatives have been positive so far. Notably, in the second quarter of 2018, off-premise sales increased by 7.6% of the company’s revenues. Further, BJ’s Restaurants expects this channel to grow by at least 50% over the next several years.

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 $1.10 billion, reflecting growth of 6.7% from 2017.


Margin-Improvement Efforts to Aid Bottom-Line Growth

BJ’s Restaurants is committed to improve the 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. Due to lesser food wastage and improved labor productivity, these new restaurants generate higher margins. Given its operational efficiency and the launch of higher return restaurant prototype, the company would continue to improve its margins. Moreover, in 2017, it initiated an additional $5 million of efficiency savings in areas such as sourcing, distribution, supplies and maintenance.

We believe that such initiatives will immensely help the company to witness earnings growth. Arguably, earnings growth is of utmost importance for determining a stock’s potential, as surging profit levels often indicate solid prospects (and stock-price gains). In 2018, BJ’s Restaurants’ earnings per share are expected to grow 50.4%.

Shareholders to Gain From Higher Returns

BJ’s Restaurants delivered ROE of 15.8% in the trailing 12 months compared with 7.3% recorded by its industry. This supports the company’s immense growth potential and indicates that it reinvests more efficiently compared with its peers. In the second quarter of 2018, the company repurchased approximately 24,000 shares of common stock for approximately $1.1 million. Additionally, the company declared a cash dividend of 11 cents per share of common stock.

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.

Darden DRI, Dine Brands DIN and Good Times Restaurants’ GTIM earnings for the current fiscal are projected to grow 14.4%, 25.5% and 33.3%, respectively.

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Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
 
Good Times Restaurants Inc. (GTIM) : Free Stock Analysis Report
 
DineEquity, Inc (DIN) : Free Stock Analysis Report
 
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Zacks Investment Research