Raymond James Upgrades Chuy's, Notes Q1 Margin Beat And Improving Visibility

In a report Tuesday, Raymond James analyst Brian Vaccaro upgraded shares of Chuy's Holdings Inc (NASDAQ: CHUY) to Outperform from Market Perform with a newly established $27.50 price target following the company's first quarter print in which margins and earnings visibility improved.

Chuy's Holdings earned $0.19 in the first quarter, ahead of Vaccaro's $0.17 estimate. The beat was driven by better than expected store margins, which were partially offset by a slight comp miss (1.9 percent versus 2.5 percent expected) as weather issues resulted in a 200 basis point drop and higher G&A costs. Revenue of $66.8 million was also higher than the analyst's expectations of $66.5 million.

Moreover, store level cash flow margin improved 95 basis points to 19.1 percent, exceeding the analyst's expectations of 17.6 percent.

"Chuy's Holdings shares were plus 10 percent in after-hours trading [on Monday] but we believe still offer an attractive entry point for investors looking for an open-ended growth story with improving earnings visibility," Vaccaro wrote. "If said margin visibility can be combined with successful 2015/2016 new unit openings (recall class of '14 showed significant improvement versus disappoint class of '13), this should further support investor confidence and the stock's valuation (which trades at a discount to rapidly growing restaurant peers)."

Following the earnings beat, Vaccaro boosted his full year 2015 estimates. That analyst is now expecting the company to earn $0.78 per share (versus a prior $0.75) on revenue of $ while lowering his revenue estimate to $283 million (versus a prior $287 million), reflecting lost sales due to a shift in timing of openings and higher G&A costs.