Bank Of America Hatches An Upgrade For Red Robin

Red Robin Gourmet Burgers, Inc. RRGB shares are soaring Wednesday, seen up over 22 percent, following first-quarter results that saw sales and earnings come in much stronger than expected.

Bank of America has upgraded the burger chain to a Buy from a Neutral rating after encouraging first-quarter results demonstrated the company’s turnaround plan is showing early positive signs.

“Despite industry sales headwinds, and labor pressure, we believe Red Robin’s recent results and greater focus on ROIC and store level margins warrant a re-thinking of our 2018 and 2019 earnings and stock valuation,” said Bank of America analyst Gregory R. Francfort.

Signs Of Spring

Red Robin has seen 18 months of sales and earnings weakness, making this earnings release particularly encouraging for the company. Comps were down 1.2 percent in the first quarter, better than Bank of America’s estimate of 2 percent.

“Red Robin’s long-time philosophy of focusing on unit growth is shifting to returns and margins. We also welcome the shift in 2017 executive compensation towards equity incentives at the expense of EBITDA and ROIC based cash incentives,” said Francfort.

Investors will get more information regarding the turnaround plan at Red Robin’s Investor Day scheduled for May 23 in Denver.

Bank of America raised its price target on Red Robin from $65 to $80.

At time of publication, shares were up 22.22 percent at $70.89.

Related Links: Red Robin Delivers Solid Q1, 'Beatable' Earnings Guidance  Red Robin Gets Innovative With Latest Menu Changes _____ Image Credit: By Mike Gonzalez (TheCoffee) (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons