Friday, KeyBanc Capital downgraded Red Robin Gourmet Burgers Inc. (RRGB) shares to Hold from Buy. The brokerage reduced its 2009 EPS estimate to $1.38 from $1.68, and its 2010 estimate to $1.22 from $1.92.
Analyst Brad Ludington downgraded the stock following disappointing results from Red Robin Gourmet Burgers in third quarter of 2009 and a significantly reduced outlook from management.
The analyst is concerned that management's resumption of increased marketing expenses along with the negative mix impact of the discounted price points on which these promotions will focus will lead to significant margin declines in the coming quarters.
The analyst feels that a balanced promotional strategy that focuses on both the discounted limited time offers and other signature items would be more successful than a focus solely on lower priced items to drive traffic.
While the analyst continues to view RRGB as a strong brand, he has become more cautious in relation to the near-term outlook as he is concerned that the current marketing strategy runs the risk of straying too far from the company's traditional premium positioning.
Given these risks, the analyst feels that shares are fairly valued as they are already trading at a discount to the peer group with a P/E of 14.5x his revised 2010 EPS estimate $1.22 and a 2010 EV/EBITDA multiple of 5.1x vs. the peer group averages of 16.3x and 6.0x, respectively.
Currently, RRGB is down $2.30 or 13.00% and trading at $15.39.
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