A viral rumor on social media hammered Texas Roadhouse for weeks, alleging discrimination at the chain. The company pushed back, calling the accusation a "baseless rumor," but the selloff kept going. By the end of September, the drop over six consecutive weeks had crossed the 20% mark. More recently, the stock has stopped sliding, which has some on Wall Street eyeing the dip as an entry point.
Evercore ISI said the sales hit from the "unfortunate" post should be short lived and became the first of two firms this week to lift its rating. "This is a great opportunity to buy a long term grower with top-tier customer satisfaction," Evercore analyst David Palmer said, upgrading the shares to outperform on Monday. StoneX also turned more positive, calling Texas Roadhouse the "highest-quality operator in casual dining" as it raised its recommendation to buy.
StoneX's Todd Brooks said guest traffic in September ran below August levels following the viral post. He said the impact should "wane with time," and lowered his third-quarter same-store sales estimate, reducing it to 5.4% after previously modeling 6.5%. Palmer expects more modest growth in sales this quarter and has reduced his full-year EPS outlook to $2.52, down from $2.92. Evercore pointed out that Texas Roadhouse delivered comp gains in nine of the last 10 years, with 2020 - during the Covid shutdown - being the lone exception. Texas Roadhouse said the recent upgrades "are a testament to our fundamentals of Legendary Food, Legendary Service, and our local community focus."
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Social media dustups are not rare for restaurants. Cracker Barrel's stock fell toward the end of last year amid backlash to a refreshed logo. McDonald's CEO Chris Kempczinski got roasted online for taking a tiny bite of its new Big Arch burger. On the flip side, attention can help: Palmer highlighted Chili's Triple Dipper as a value favorite, and said Burger King, owned by Restaurant Brands International, has been winning back diners after a widely promoted Whopper refresh.
Higher food costs and cautious consumers have weighed on the group. An S&P restaurant index is down 10% this year, while the S&P 500 is up 14%. Even after the pullback, Texas Roadhouse shares are off only about 1.5% year to date. Analyst sentiment skews positive: 17 buy equivalent ratings, 12 holds, and no sells, per Bloomberg data, with an average 12 month target that sits 33% above Tuesday's close. As Palmer put it, "Investors are not paying up for Texas Roadhouse today, you are buying it in-line with its historical multiple and being handed the margin recovery for free."
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