01:27 PM EDT, 07/05/2024 (MT Newswires) -- Texas Roadhouse ( TXRH ) is likely to see "solid" margin gains and earnings growth this year despite inflationary pressures in the second half, while its long-term restaurant margin target is achievable, UBS Securities said Friday.

The brokerage expects the casual dining restaurant operator to see continued restaurant margin gains in the second half of 2024 despite continued beef and wage inflation. Commodity inflation is pegged at nearly 3% this year, mainly due to a mid-single-digit rise in beef prices and 4% to 5% labor inflation, UBS said in a note to clients. The brokerage expects Texas Roadhouse's ( TXRH ) 2024 margin to expand by 110 basis points year over year to 16.5%.

"While we expect margins to be more pressured in (the second half) than in the first half of the year, we anticipate expansion driven by favorable other operating expense and traffic leverage over labor," UBS analyst Dennis Geiger said. The brokerage's casual dining survey indicated "solid visit demand and strong brand perceptions" for Texas Roadhouse ( TXRH ), according to the note.

Overall, the company's sales leverage and labor efficiencies are expected to support strong 2024 margin gains and bottom-line growth, "with increasing confidence that competitive advantages will enable a multiyear sales outperformance," Geiger wrote. The company continues to drive "best-in-class" traffic and same-store sales growth, while its development pipeline is robust, the analyst said.

Texas Roadhouse is scheduled to report its second-quarter financial results July 25, with UBS projecting earnings at $1.63 a share, compared with Wall Street's view for $1.62. For the full-year, the brokerage forecasts EPS at $6.01 versus the Street's $5.97 view, according to the note.

The company's shares were up 2.1% in Friday afternoon trade. For the year so far, the stock is up nearly 39%. Further share price upside is likely amid factors such as its traffic momentum, UBS said.

"While beef inflation is expected to persist in (the second half of 2024) and 2025, and less pricing could impact margin gains next year, retail beef demand remains a wild card and we expect strong top-line trends provide still-solid EPS growth in (2025)," the analyst said.

The brokerage has a buy rating on the company's stock, with a $185 price target.

"Longer-term, we believe margin expansion towards the (17% to 18%) target is achievable, likely worth (about) $0.80 of EPS upside, particularly as the beef cost cycle becomes more favorable over time," Geiger said.

Price: 170.07, Change: +3.43, Percent Change: +2.06