Critical Review: Texas Roadhouse (TXRH) vs. Aramark (ARMK)

Aramark (NYSE: ARMK) and Texas Roadhouse (NASDAQ:TXRH) are both mid-cap consumer staples companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, institutional ownership, risk, analyst recommendations, profitability, valuation and dividends.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Aramark and Texas Roadhouse, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Aramark 0 2 4 1 2.86
Texas Roadhouse 1 10 7 0 2.33

Aramark currently has a consensus price target of $43.14, suggesting a potential upside of 10.40%. Texas Roadhouse has a consensus price target of $49.76, suggesting a potential upside of 2.44%. Given Aramark’s stronger consensus rating and higher possible upside, equities research analysts plainly believe Aramark is more favorable than Texas Roadhouse.

Dividends

Aramark pays an annual dividend of $0.41 per share and has a dividend yield of 1.0%. Texas Roadhouse pays an annual dividend of $0.84 per share and has a dividend yield of 1.7%. Aramark pays out 29.9% of its earnings in the form of a dividend. Texas Roadhouse pays out 50.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Aramark has raised its dividend for 2 consecutive years.

Institutional & Insider Ownership

95.7% of Aramark shares are owned by institutional investors. Comparatively, 88.4% of Texas Roadhouse shares are owned by institutional investors. 2.9% of Aramark shares are owned by insiders. Comparatively, 7.4% of Texas Roadhouse shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Profitability

This table compares Aramark and Texas Roadhouse’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Aramark 2.37% 19.29% 4.11%
Texas Roadhouse 5.63% 16.49% 10.94%

Volatility & Risk

Aramark has a beta of 0.48, suggesting that its stock price is 52% less volatile than the S&P 500. Comparatively, Texas Roadhouse has a beta of 0.54, suggesting that its stock price is 46% less volatile than the S&P 500.

Earnings and Valuation

This table compares Aramark and Texas Roadhouse’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Aramark $14.49 billion 0.66 $1.29 billion $1.37 28.53
Texas Roadhouse $2.10 billion 1.64 $278.28 million $1.66 29.27

Aramark has higher revenue and earnings than Texas Roadhouse. Aramark is trading at a lower price-to-earnings ratio than Texas Roadhouse, indicating that it is currently the more affordable of the two stocks.

About Aramark

Aramark is a global provider of food, facilities and uniform services to education, healthcare, business and industry, and sports, leisure and corrections clients. The Company operates through three segments: Food and Support Services North America (FSS North America), Food and Support Services International (FSS International), and Uniform and Career Apparel (Uniform). FSS North America and FSS International segments include food, refreshment, specialized dietary and support services, including facility maintenance and housekeeping, provided to business, educational and healthcare institutions and in sports, leisure and other facilities. The Uniform segment includes rental, sale, cleaning, maintenance and delivery of personalized uniforms and other textile items to clients in a range of industries in the United States, Puerto Rico, Japan and Canada, including manufacturing, transportation, construction, restaurants and hotels, healthcare and pharmaceutical industries.

About Texas Roadhouse

Texas Roadhouse, Inc. is a restaurant company, which operates in the casual dining segment. The Company offers an assortment of seasoned and aged steaks, all cooked over open grills and all but one hand cut daily on the premises. Its restaurants offer a range of menu items at prices that are designed to appeal to a range of consumer tastes. The Company also offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, and an assortment of hamburgers, salads and sandwiches. The Company offers an assortment of wings, sandwiches, pizzas and burgers, including its bacon grind patty. In addition, the Company also offers its guests a selection of chicken, beef, fish and seafood. Other menu items include specialty appetizers, such as the Cactus Blossom and Rattlesnake Bites. As of December 27, 2016, the Company had 23 franchisees that operated 86 Texas Roadhouse restaurants in 23 states and six foreign countries.

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