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On Feb 18, 2013, we upgraded our recommendation to Outperform on Red Robin Gourmet Burgers, Inc. (RRGB - Analyst Report), one of the most recognized full-service casual dining restaurant chains in the United States. The upgrade was based on the company’s better-than-expected fourth-quarter 2012 results.

Why the Upgrade?

On Feb 8, Red Robin reported its fourth-quarter 2012 adjusted earnings of $0.59 per share, up 34.1% from the Zacks Consensus Estimate. Results in the quarter benefited from higher revenue growth and margin expansion.

Quarterly revenues increased 16.8% from the year-ago period to $240.7 million, easily surpassing the Zacks Consensus Estimate of $234 million. Over the past four quarters, Red Robin has delivered an average surprise of 23.9%.

Following the release of fourth quarter results, the Zacks Consensus Estimate for 2013 has gone up 5.8% to $2.18 per share. Similarly, the Zacks Consensus Estimate for 2014 advanced 13.9% to $2.48 per share. With the Zacks Consensus Estimates for both the years moving north, Red Robin now has a Zacks Rank #1 (Strong Buy).

Reasons for Positive Bias

Apart from strong fourth-quarter results Red Robin’s growth story looks compelling. Red Robin's management team has undertaken an operating initiative to significantly drive its revenues by 2015. Moreover, Red Robin is focused on company-owned unit expansion to augment its business further.

In order to reduce its costs, Red Robin is continuously trying to enhance its technological infrastructure through several initiatives, such as, improving supply chain, and minimizing administrative headcount. Currently, more than 28% of Red Robin’s total restaurants are franchised which will provide another engine for earnings per share growth.

Other Stocks to Consider

Besides Red Robin, other stocks in the restaurant industry that are currently performing well include Burger King Worldwide, Inc. (BKW - Analyst Report), Jack in the Box Inc. (JACK - Snapshot Report), and Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report). All these companies carry a Zacks Rank #2 (Buy).

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