Texas Roadhouse

Company overview

Texas Roadhouse operates three concepts: Texas Roadhouse (a moderately priced, full-service steakhouse with hand-cut steaks and made-from-scratch sides), Bubba's 33 (a sports-bar concept) and Jaggers (fast casual). At 30 December 2025 the company owned and operated 714 restaurants (648 Texas Roadhouse, 56 Bubba's 33, 10 Jaggers) and franchised a further 102, 61 of them outside the US. It is overwhelmingly company-operated: restaurant and other sales were $5,847M of FY25 revenue of $5,878M. Since 2022 it has bought back domestic franchise restaurants (20 in FY25, 5 in 1H26), turning royalty income into restaurant sales and restaurant-level costs.

The stock closed at a 52-week high of $216.30 in August 2026 and fell to $153.83 within weeks before settling at $161.50 on 9 October. Three things happened at once. Casual-dining stocks sold off on 15 September 2026 after Placer.ai reported US dining foot traffic down 2.4% year on year in August. A false social-media post alleging discrimination at the chain circulated for several weeks; the company called it a "baseless rumor", and at least two brokers upgraded the shares in the week of 5 October. And restaurant margin fell 66 bp year on year in 2Q26 to 16.4% on 7.0% commodity (beef-led) inflation, while the Federal Reserve raised its target range to 3.75–4.00% on 16 September 2026 and the 10-year Treasury yield closed at 5.24% on 9 October.

Underneath the noise the operating record is strong: comparable restaurant sales rose 6.7% in 1H26 (6.2% in the first five weeks of 3Q26), average weekly sales hit a record $177,252 in 2Q26, and company-owned restaurants grew from 566 to 732 since the end of FY21. The balance sheet is essentially unlevered: $202M of cash and $50M drawn on a $450M revolver at 30 June 2026. Operating-lease liabilities were $974M at FY25 with a 17.5-year weighted remaining term (ASC 842).

You are an Associate in the Consumer & Restaurants group of an investment bank, initiating coverage ahead of a meeting with senior management. The Managing Director wants a view they can defend in front of the company and the bank's institutional clients: at $161.50, is TXRH stock cheap, fair or expensive, and why? Your memo is what gets graded here. The assignment also asks for an integrated FY26E–FY30E model in the student template, which you can attach as a supporting file. The case uses public information only and is a training exercise, not investment advice.

Your initiation memo should answer

1. 01Recommendation and price target. Rating (Buy / Hold / Sell or Outperform / Neutral / Underperform), 12-month price target and expected total return, in the first three sentences.
2. 02Investment thesis. Three numbered points, each tied to a number in your model.
3. 03Business and unit economics. How TXRH makes money: store weeks × sales per store week, restaurant margin, new-unit returns. Explain why franchise buy-backs change the mix of revenue and margin.
4. 04What the market is pricing in. Use your DCF to back out the exit multiple, perpetual growth rate or restaurant margin the current price implies, and say whether it is reasonable.
5. 05Valuation. DCF (both terminal methods) and trading comparables, summarised in a football field. Reconcile the methods: explain why they differ.
6. 06Risks and what would change your mind. Beef cost cycle, traffic after the September 2026 social-media episode, wage inflation, the rate environment. At least one quantified downside case.
7. 07Catalysts and timeline. What you would watch at 3Q26 results and the FY27 outlook.

Financials ($M)

Term sheet

Mandate

Initiation of coverage on Texas Roadhouse (TXRH): rating, 12-month price target and expected total return

Company

Texas Roadhouse, Inc. (NasdaqGS: TXRH) · Louisville, Kentucky · fiscal year ends last Tuesday of December

Case date

Friday 9 October 2026 (market data as of the close). Latest filing: 10-Q for the 26 weeks to 30 June 2026.

Your role

Associate in the Consumer & Restaurants group of an investment bank, initiating coverage ahead of a meeting with the company's senior management

Share price

$161.50 at the close on 9 Oct 2026; 52-week high $216.30 (August 2026), low $153.83

Shares

65,640,926 basic shares (10-Q 2Q26 cover, 29 Jul 2026); dilutive securities 0.224M (treasury method)

Net debt

Cash $202.4M; debt incl. finance leases $52.7M (revolver $50.0M drawn on a $450M facility); operating-lease liabilities of $1,037.6M are outside debt if EBITDA is after rent

Dividend

$0.75 quarterly (2026); $0.75 paid on 29 September 2026, deducted when you roll value forward to 9 October 2026

Assignment 1: memo

Written initiation memo to the Managing Director, no more than three pages plus up to two pages of exhibits, good enough to forward to a portfolio manager without edits

Assignment 2: model

Five-year (FY26E–FY30E) integrated model in the template: operating build, three statements that balance, debt schedule, DCF with both terminal methods, trading comparables, three sensitivity grids and a football field

Fiscal calendar

FY26 ends 29 December 2026 (52 weeks). FY30 ends 31 December 2030 and is a 53-week year; normalise the terminal year to 52 weeks before capitalising it

Tax

Use management's ~14% effective rate for FY26E; justify your rate for FY27E onwards and explain what drives it below the statutory rate

Leases

ASC 842: be explicit about whether EBITDA is before or after rent, and keep enterprise value and multiples on the same basis

Valuation date

Discount to the 30 June 2026 balance sheet date and roll the equity value forward to 9 October 2026; deduct the $0.75 dividend paid on 29 September 2026

Market inputs

Use the share price, share count, Treasury yield and peer data in the template (all dated and sourced). A different equity risk premium, beta or terminal assumption needs a dated source or a Judgment label with a rationale

Market data and valuation inputs (close of 9 Oct 2026 unless stated; from the student template's Inputs tab)

TXRH share price (close)

$161.50

52-week high / low

$216.30 / $153.83

Basic shares outstanding (10-Q 2Q26 cover, 29 Jul 2026)

65,640,926

Dilutive securities (treasury method)

0.224M

Cash and cash equivalents (30 Jun 2026)

$202.4M

Debt incl. finance leases (30 Jun 2026)

$52.7M (revolver $50.0M drawn on a $450M facility, plus finance leases)

Non-controlling interests (30 Jun 2026, book value)

$21.2M

Dividend paid between 30 Jun and 9 Oct 2026

$0.75 per share, paid 29 Sep 2026

Risk-free rate: 10-year US Treasury (CMT, 9 Oct 2026)

5.24% (20-year: 5.65%)

Equity risk premium

4.20% (Damodaran implied ERP, 1 Oct 2026)

Pre-tax cost of debt

5.00% (base rate 3.90% + 1.10% revolver margin)

Marginal tax rate (for unlevering beta)

25% (Judgment: 21% federal + ~4% state)

TXRH beta, 2-year weekly vs S&P 500

0.511 raw / 0.672 Blume-adjusted

Fed funds target range

3.75%–4.00% (FOMC, 16 Sep 2026)

Terminal growth rate and exit multiple

Your judgment: blank in the template; give a dated source or label it Judgment

Trading comparables: inputs ($M except per share; LTM = FY + YTD − prior-year YTD; equity value, EV and multiples are yours to build)

DRI · Darden Restaurants (LTM to 30 Aug 2026)

Price $197.66; diluted shares 113.143M; debt incl. finance leases $4,376.1M; cash $220.5M; LTM revenue $13,366.5M; LTM EBITDA $2,133.1M; LTM net income $1,182.3M; LTM diluted EPS $10.23; beta 0.551 raw / 0.699 adjusted

EAT · Brinker International (LTM to 24 Jun 2026)

Price $193.87; diluted shares 41.765M; debt incl. finance leases $444.8M; cash $110.0M; LTM revenue $5,807.4M; LTM EBITDA $836.5M; LTM net income $487.0M; LTM diluted EPS $10.87; beta 0.673 raw / 0.781 adjusted

CAKE · The Cheesecake Factory (LTM to 30 Jun 2026)

Price $108.45; diluted shares 49.761M; debt incl. finance leases $562.9M; cash $195.2M; LTM revenue $3,877.2M; LTM EBITDA $317.3M; LTM net income $178.6M; LTM diluted EPS $3.69; beta 1.041 raw / 1.027 adjusted

BJRI · BJ's Restaurants (LTM to 30 Jun 2026)

Price $59.87; diluted shares 21.274M; debt incl. finance leases $44.0M; cash $14.4M; LTM revenue $1,432.6M; LTM EBITDA $122.5M; LTM net income $40.9M; LTM diluted EPS $1.89; beta 1.162 raw / 1.109 adjusted

Screened out

Bloomin' Brands (BLMN) and Cracker Barrel (CBRL)

Unit economics and KPIs (company restaurants; FY22A / FY23A / FY24A (53 weeks) / FY25A unless stated)

Openings

23 / 30 / 31 / 28 (6M26: 13)

Acquired from franchisees

8 / 8 / 0 / 20 (6M26: 5)

Franchise restaurants, end of period

100 / 106 / 118 / 102 (Jun-26: 100)

Store weeks

30,284 / 32,050 / 34,464 / 36,178

Restaurant and other sales per store week ($000)

131.7 / 143.7 / 155.0 / 161.6

Average weekly sales, company restaurants

FY24 $155,285; FY25 $161,918; 6M25 $165,228; 6M26 $175,708

Comparable restaurant sales growth

9.7% / 10.1% / 8.5% / 4.9% (26 weeks to Jun-26: 6.7%)

of which guest traffic

1.9% / 5.4% / 4.4% / 2.8%

of which per-person average check

7.8% / 4.7% / 4.1% / 2.1%

Capex: new company restaurants

$139.2M / $201.2M / $198.4M / $180.8M

Capex: refurbishment or expansion

$84.4M / $119.8M / $122.9M / $135.8M

Capex: relocation

$18.5M / $20.6M / $25.6M / $43.6M

Capex: Support Center

$4.0M / $5.4M / $7.4M / $27.8M

Average capital investment per new Texas Roadhouse (2026)

about $8.9M, including a 10× rent factor for leased sites and pre-opening

2026 outlook (company guidance, 6 Aug 2026)

Comparable sales

Positive, including menu pricing

Store-week growth

5–6%, including franchise acquisitions

Commodity inflation

~5%

Wage and other labor inflation

3–4%

Effective tax rate

~14%

Total capital expenditures

~$400M

Leases, tax and other items (10-K FY25 and 10-Q 2Q26)

Operating-lease liabilities

$974.0M at FY25 ($1,037.6M at 30 Jun 2026); weighted-average discount rate 6.70%; remaining term 17.5 years

Rent and real estate

FY25 rent $92.3M, about 1.6% of restaurant sales; 158 restaurants on owned sites, 556 on leased sites (487 ground leases)

Finance leases

about $2.7M (in debt)

FICA tip credit

reduced FY25 tax by $49.7M, 10.3 percentage points of pre-tax income

Gift-card deferred revenue

$448.7M at FY25; $305.9M at 30 Jun 2026 (seasonal)

Non-controlling interests

$21.2M on the balance sheet at 30 Jun 2026; $8.8M of FY25 net income

53-week years

FY24 had 53 weeks (the extra week added $114.7M of revenue, 2.1%); FY30 will have 53 weeks

Franchise acquisitions

20 restaurants for $113.5M of cash in FY25; 5 for $71.8M in 1H26