Ticker Reports for October 25th
Texas Roadhouse Stock Steering for New Highs This Year
Texas Roadhouse (NASDAQ: TXRH) is a highly valued stock, but it is valued that way because it is the leading restaurant player and has ample growth potential to drive long-term shareholder value increases. The initial reaction to the Q3 results was tepid, but it was nothing more than a meh reaction to solid results and not an indication that the market was topping.
A pullback in share prices would be a blessing for investors, providing an entry into a high-quality growth company able to sustain a rock-solid balance sheet while paying substantial dividends. However, whether there is a pullback in price action or not, Texas Roadhouse shares can hit a new high this year because the results support the trend, and the indications for share price increases are robust.
Texas Roadhouse Serves Industry-Leading Growth and Wider Margin
Texas Roadhouse's Q3 results were lackluster but only compared to the high bar set by analysts. Analysts have been lifting their estimates for the last year, with recent revisions leading to the high-end range. Regardless, the company’s as-expected 13.4% revenue growth is industry-leading, driven by increased comps and new stores. Comps are up by 8.5% at company-owned stores and 7.2% at franchisee locations, and togo is up by 12.6% and continues to aid margin. The company has another ten new stores in development and plans to acquire 13 domestic franchisee locations, a move expected to help top and bottom-line results.
Margin news is good, with check volume and productivity offsetting labor costs and inflation to drive leveraged results on the bottom line. Restaurant-level margin dollars increased by 24.1% on a 140-basis-point increase in restaurant margin. Income from ops grew by 38%, net income by 32.3%, and GAAP earnings by 32.5%, aided by share repurchases. The GAAP EPS missed the consensus by 500 basis points, which could be better news. Still, it is growing, margin improvement is expected to stick, and it remains sufficient to sustain company health, the growth outlook, and capital returns.
Share repurchases aren’t robust but sufficient to offset share-based quarterly compensation. The average count is down by 0.1%, sustaining an even count compared to the prior year, and is expected to continue falling at or near this pace for the foreseeable future. The dividend is more substantial, running at 42% of earnings and rising at a double-digit pace. The pace of increases has slowed since the distribution was reinstated but remains high at 10%. The dividend was cut during the pandemic to preserve capital, a move paying off for investors today. The pace of increases helps sustain the uptrend in share prices and is likely to be sustained at or near 10% in calendar 2025
Guidance and Analysts Lead Texas Roadhouse Higher
The company’s guidance is sound. The first few weeks of the quarter indicate that comp-store growth is steady at nearly 8.5%, setting the company up for a strong holiday season. 2025 is also expected to be good, with positive comps and net new store count growth to drive business. The guidance includes a forecast for an 11% increase in CAPEX, aligning with the outlook for a double-digit dividend increase next year. Regarding the balance sheet, assets were up at the end of the quarter, with total liability running near 1.25x equity and .55x assets. Equity, the measure of shareholders' value, was up by nearly 15% and is expected to continue increasing.
The analysts’ response to the news is good. The first revisions tracked by MarketBeat.com included positive revisions to price targets, maintaining the Moderate Buy rating, and incrementally lifting the consensus price target, extending the trend in place. The critical detail is that the rising consensus figure supports the market, and revisions lead to the high-end range, a gain of 20% to 30%, well above the price action leading into the report.
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Monopar Therapeutics Skyrockets 400% on Licensing Deal
Monopar Therapeutics (NASDAQ: MNPR) saw its stock skyrocket over 400% on Thursday after announcing a licensing deal with AstraZeneca. By 2 PM, the stock had traded over 10 million shares, far above its usual daily volume of 800,000.
This sudden surge in price and volume has caught the attention of many, driven by the news that Monopar will take over the global development and commercialization of a once-terminated Phase 3 drug candidate from AstraZeneca’s Alexion unit. With such extreme price action, many might wonder whether the recent rally is the start of a longer-term opportunity or just a short-term pop.
What is Monopar Therapeutics?
Monopar is a clinical-stage biopharmaceutical company focused on developing cancer therapeutics. Its lead product candidate, Validive, is in late-stage trials to prevent severe oral mucositis in cancer patients undergoing chemoradiotherapy. In addition, the company is advancing several other pipeline drugs, including Camsirubicin, which targets advanced soft tissue sarcoma, and MNPR-101, an antibody-based therapy designed for multiple cancers and severe COVID-19. Monopar’s research portfolio is ambitious, but the company has yet to report consistent revenue, making it a high-risk bet in the biotech space.
Monopar Secures Exclusive License
The stock’s dramatic move on Thursday came after Monopar announced it had secured an exclusive worldwide license to develop and commercialize ALXN-1840, a drug designed to treat Wilson’s disease, a rare genetic disorder that leads to toxic copper buildup in the liver, brain, and other organs. AstraZeneca had previously terminated the program after clinical trials failed to meet regulatory endpoints despite showing promise in earlier studies. Under the new agreement, Monopar will make upfront cash and equity payments to AstraZeneca, with additional costs tied to future regulatory milestones and sales performance.
Key Considerations Before Taking Action in MNPR
The recent rally has drawn interest from traders, but the extreme volatility also comes with risks. With a small float and typically low trading volume, Monopar’s shares are prone to sharp price swings. While Thursday’s surge is exciting, it could just as quickly reverse if momentum fades or profit-taking sets in.
Long-term investors may need to be cautious, especially given that the company has reported no revenue for the second quarter of 2024 and a net loss of $0.10 per share. The stock has a consensus Buy rating based on three analyst ratings, but the consensus price target of $22 suggests potential downside after the recent spike. It’s also worth noting that the consensus price target is primarily influenced by one outlier price target of $50 set by Rodman & Renshaw, with the other two price targets at $6 and $10, respectively.
Monopar’s ability to sustain this momentum will largely depend on how well it executes the development of ALXN-1840 and advances its other drug candidates. The company has regained Nasdaq compliance through a 5-for-1 reverse stock split and expanded its partnership with NorthStar Medical Radioisotopes, which will supply critical components for cancer treatment. These developments are encouraging, but the road ahead remains challenging, especially without steady revenue streams.
Should You Invest?
For now, Monopar offers an exciting, high-risk, high-reward opportunity for speculative traders who thrive on volatility. However, the recent rally may not be enough for long-term investors to offset the risks tied to the company’s financials and uncertain clinical timelines. Whether the partnership with AstraZeneca can unlock new value or if this surge is just a temporary spike will become more apparent as the company moves forward. Investors must stay alert to any new developments to determine if Monopar can capitalize on this fresh catalyst or if it remains a speculative trade best suited for short-term gains.
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Tractor Supply Stock Pulls Back: A Prime Buying Opportunity
Tractor Supply Company (NASDAQ: TSCO) is still a good buy because of its growth, increased leverage, and cash flow used to pay shareholders. The company’s Q3 results failed to support the price action but aren’t bad news for investors, merely weaker than expected in a world with macroeconomic headwinds and a tepid retail environment. The takeaway is that this dividend achiever is on track to sustain growth in 2025 despite the headwinds and is growing its addressable market quarterly. The pullback in share prices is a chance to load up on more stock at a discounted price.
The latest news includes the acquisition of Allivet in an all-cash deal. Allivet is an online pet pharmacy and aligns with the Tractor Supply Company portfolio. To invigorate growth, it plans to market Allivet to its 37 million loyalty club members while building on the Allivet brand to grow it organically. The move is a natural progression because Allivet has already partnered to deliver services to Tractor Supply customers and is forecasted to be accretive to shareholders within the first year. Analysts estimate the acquisition is worth $15 billion of the addressable market, roughly 100% of the 2025 consensus.
Tractor Supply Company Improves Quality in a Tepid Environment
Tractor Supply Company had a tepid quarter but not a bad one, with revenue growing only 1.8% and results aligning with analysts' estimates. The critical detail is that growth was sustained due to the increased store count, which is expected to grow in 2025. Comp sales were down by 0.2%, but weakness was expected, and the 0.3% increase in ticket count suggests improved traffic despite the decline in ticket average.
Margin news is also good, with gross margin improving in Q3 due to cost management and reduced transportation expenses. Operating costs rose, offsetting the gains, but one-offs are involved, including increased depreciation and amortization related to the sale-leaseback strategy. That strategy is lightning the asset base while providing cash and improved operating leverage. Although earnings are down compared to the prior year, the $2.24 in GAAP EPS was better than expected and sufficient to sustain the fortress balance sheet and capital return outlook.
The guidance is favorable but less than the market had hoped, providing little support for the price action immediately after the release. However, the guidance range was narrowed, with the low end rising, aligning the mid-point with the consensus, an increase from the prior year. Growth is expected to accelerate for this retailer in 2025 and be sustained by a tailwind driven by store count growth, deepening penetration, and the falling interest rate environment.
Tractor Supply Company Is Worth the Higher Valuation
Tractor Supply Company tends to trade at a higher-than-average valuation relative to the S&P 500 but is worth the price. The company produces solid cash flow and is able to sustain its balance sheet, capital returns, and acquisitions such as Allivet. Highlights at the end of Q3 include an 8% increase in equity and long-term debt leverage of less than 1x equity, including the impact of dividends and share repurchases. The dividend is worth $4.40 annually, about 1.5%, with shares trading near $275 and above the broad market average despite the higher valuation. Repurchases benefit shareholders, reducing the count by 1.5% YoY on average in Q3.
The price action in TSCO fell more than 5% following the release but may not move much lower. It is approaching the 150-day exponential moving average, which has provided solid support in the past. The likely scenario is that the market will again support the price action at that level because of the operational quality and capital return outlook. If not, TSCO stock could pull back as far as $250 or lower. In that case, the stock of this high-quality retailer would provide a deep value and high yield relative to its historical norms.
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