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Why Texas Roadhouse Stock Is Up Today

By Lou Whiteman - Mar 13, 2020 at 3:23PM

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Investors are hoping the downturn won't last as long as feared.

What happened

Shares of Texas Roadhouse (TXRH -0.13%) climbed more than 10% on Friday, reversing declines from previous days. Restaurants are sure to get clobbered by the COVID-19 coronavirus outbreak, but with Texas Roadhouse shares down more than 37% since Feb. 23, perhaps those losses could finally be priced in.

So what

It isn't hard to make the case for why restaurants will likely report miserable first-quarter results. The coronavirus outbreak is compelling consumers to stay at home, and eating out isn't likely to be front of mind.

The real questions are how long will the outbreak last, and will it have long-term economic repercussions. While the length of the outbreak is impossible to predict, Friday did bring some reasons for investors to hope that the economy will not be grounded for long.

A restaurant with an open for business sign at the door.

Image source: Getty Images.

The University of Michigan Consumer Sentiment Index released Friday did show a decline from month's end, but the fall was not as bad as economists had predicted, and the number is largely unchanged from the average for all of 2019. That suggests consumers are not ready to shove their cash into their mattresses, and demand could recover once the virus wanes.

The government is also taking steps to boost the economy. The New York Fed on Friday morning announced it would boost Treasury buying operations to try to support markets. And Treasury Secretary Steven Mnuchin told CNBC that the White House is close to a deal with Congressional leaders on a stimulus package.

Now what

It feels good to see green on the screen, but don't for an instant think the sell-off is definitely over. Negative headlines over the weekend about the stimulus package falling through or an uptick in new virus cases could easily spook markets and cause selling to resume on Monday.

There's no way for a restaurant to sugar-coat a pandemic, and Texas Roadhouse earnings are likely to suffer during the current quarter, if not beyond. But this is a strong operator with a good, long-term business. And once things return to normal, Texas Roadhouse should sizzle again.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Texas Roadhouse. The Motley Fool has a disclosure policy.

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