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Estimates have been rising for Texas Roadhouse, Inc. (TXRH - Snapshot Report) after the company delivered solid fourth quarter results, including a 5.6% increase in same-store sales.

It is a Zacks #2 Rank (Buy).

The company also recently announced a 12.5% increase in its dividend. It currently yields 2.2%.

Company Description

Texas Roadhouse operates over 360 restaurants system-wide in 47 states and one foreign country.

It is headquartered in Louisville, Kentucky (no, NOT Texas) and has a market cap of $1.2 billion.

Fourth Quarter Results

Texas Roadhouse reported better than expected fourth quarter results on February 21. Earnings per share came in at 17 cents, beating the Zacks Consensus Estimate by a penny. It was a 28% increase over the same quarter last year.

Total revenue rose 13% over the same period to $276.6 million, ahead of the Zacks Consensus Estimate of $271.0 million. This was driven in part by a stellar 5.6% increase in same-store sales.

Operating income rose 16% as the company was able to somewhat offset a declining gross profit margin with fixed expense leverage.

Outlook

Analysts revised their estimates significantly higher for both 2012 and 2013 following strong Q4 results. This sent the stock to a Zacks #2 Rank (Buy).

Management expects approximately 5% EPS growth in 2012 on same-store sales growth of 4-5%. It also expects to open 25 restaurants this year. The Zacks Consensus Estimate for 2012 is now $0.93, representing 5% EPS growth, and in-line with guidance.

The 2013 consensus estimate is currently $1.07, corresponding with 16% EPS growth.

Returning Value to Shareholders

Texas Roadhouse generates solid free cash flow, which it has been returning to shareholders through dividends and stock buybacks.

In 2011, the company repurchased 3,972,100 shares of its stock for a total of $59.1 million. It also began paying a regular quarterly dividend early in 2011 and recently announced a 12.5% increase to 9 cents per share.

It yields 2.2%.

Valuation

Valuation looks reasonable for TXRH, with shares trading at 17.1x 12-month forward earnings, a discount to its historical median of 18.6x. It sports a PEG ratio of 1.1 based on a consensus 5-year growth rate of 15.4%.

Its price to book ratio of 2.3 is in-line with both the industry median and its historical median.

The Bottom Line

With rising estimates, solid earnings growth, shareholder-friendly management, a 2.2% yield and reasonable valuation, Texas Roadhouse offers a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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