BJ's Restaurants, Inc. (BJRI - Free Report) is currently one of the best-performing stocks in the U.S. restaurant space 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 outperformed its industry in the past year. The stock has gained 41.7% compared with the industry’s rally of 4.4%. Moreover, an upward revision in earnings estimates for 2018 reflects analysts’ confidence in the company’s future earnings potential. Over the past 60 days, the Zacks Consensus Estimate for 2018 earnings has been revised upward by 9.9%.
BJ’s Restaurants sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. Back-tested results show that stocks with 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.
Continued Efforts to Improve Revenues
BJ’s Restaurants implemented several major sales-building initiatives that have contributed positively to the company’s first-quarter sales. With increased focus on productivity and efficiency, along with a plan of balanced restaurant opening, it is further heading toward near and long-term operating success.
The company’s key needle-moving initiatives continued to drive substantial revenues in the first quarter of 2018. In 2017, the restaurants’ 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 fourth quarter of 2017, off-premise sales increased to 7% of the company’s revenues compared with its industry average of nearly 10-11%. Further, in the first quarter of 2018, BJ’s Restaurants’ off-premise business grew more than 30%, constituting 7.5% of the company’s revenues and reflecting 150 basis points (bps) growth from the prior-year quarter. Looking at this trend, management believes that there is a tremendous opportunity for further building the off-premise part of business.
In addition, BJ’s Restaurants’ extensive focus on refining and streamlining its menu is the key driver for improved traffic. The company’s slow-roasted menu, launched in 2017, has become a huge success. It significantly boosted average check with high incident rates. Additionally, the restaurants have developed a robust pipeline of new menu items, focusing on its EnLIGHTened menu category and featuring its new super food options. Moving ahead, the company plans to introduce new flavors and improve the quality of its menu items. Notably, BJ’s Restaurants’ higher-priced menu items continue to be popular and management believes that these items would boost check in the near term.
Backed by such robust sales-building initiatives, the consensus estimate for 2018 sales is pegged at $1.1 billion, reflecting growth of 5.7% from 2017.
BJ’s Restaurants is committed to improve its 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 new higher return restaurant prototype, it would thus continue to improve its margins. Moreover in 2017, the company 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 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 41.8%.
BJ’s Restaurants delivered a ROE of 13.81% in the trailing 12 months compared with its industry’s figure of 6.07%. This supports the company’s immense growth potential and indicates that it reinvests more efficiently compared with its peers.
Other Stocks to Consider
Other top-ranked stocks in the U.S. restaurant space include Wingstop (WING - Free Report) , Denny’s (DENN - Free Report) and Dine Brands (DIN - Free Report) . While Wingstop sports a Zacks Rank #1, Denny’s and Dine Brands both carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Wingstop, Denny’s and Dine Brands’ earnings for 2018 are expected to increase 13.5%, 15.5% and 23.1%, respectively.
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