Texas Roadhouse, Inc. (TXRH) stock intrinsic value fair value estimate & owner earnings analysis

Texas Roadhouse runs value-priced, made-from-scratch steakhouses under the Texas Roadhouse name. It also owns Bubba's 33, a sports-bar concept, and Jaggers, a fast-casual concept. Almost all revenue comes from company-owned restaurants in the United States, and franchise royalties are small. Revenue grew from $1.81 billion in 2015 to $5.88 billion in 2025. In 2025 the company opened 28 company restaurants (20 Texas Roadhouse, seven Bubba's 33 and one Jaggers). Store weeks rose 5.0% and comparable restaurant sales rose 4.9%, helped by both more guests and a higher average check. The company has combined steady new openings with rising traffic for most of the last decade, and that is the core of the business. How we measure earnings. We start from operating cash flow and take out three things: - the timing benefit from working capital, mostly growth in unredeemed gift cards and accrued bills, which added $51 million of cash in 2025; - stock-based pay, $48 million; - the capital spending needed to keep the business running. Our method treats only a small part of capital spending as growth spending: about 6.9% of each year's revenue increase, which is the company's average capital spending per dollar of revenue. On that basis, $353 million of 2025's $388 million of capital spending counts as a cost of staying in business. That includes most of the cost of building new restaurants. This is conservative, because the resulting earnings figure has already paid for roughly 4% a year of new-unit growth. So our growth path gives credit for that growth without charging for it a second time. Cash spent buying restaurants from franchisees ($107.5 million in 2025 and $71.8 million in the first half of 2026) is not deducted, so we give no growth credit for the sales those purchases add. On this basis, earnings per share were $3.28 in 2022, $2.51 in 2023, $4.62 in 2024 and $4.17 in 2025. We check these against net income plus non-cash charges each year, and they match. 2024 had 53 weeks; the extra week added $114.7 million of revenue. Starting point. We use $3.73 per share, the middle of 2022 to 2025. That is the post-pandemic business at its current size. We leave out 2020, when COVID closed dining rooms, and 2021, when the reopening rebound distorts the capital spending split. Per-share earnings fell 9.7% in 2025. Two dated facts explain the drop: the company was comparing against the 53-week 2024, and beef-driven food inflation of 6.1% cut restaurant margin from 17.1% to 15.5% of sales. The first half of 2026 shows the business growing again. Revenue rose 11.9% and operating cash flow rose 20% from a year earlier, though second-quarter net income was flat because of cost pressure. So our first-year growth is a modest 6%. That still leaves 2026 below the $4.17 the company actually earned in 2025. All values are discounted at 6%. Debt is small: $50 million drawn on the revolving credit facility against about $202 million of cash at mid-2026. Most of the company's obligations are restaurant leases, and their cost is already inside the cash flows. Base case, about $94 per share. The company keeps opening roughly 4-5% more company restaurants a year, as it has for a decade, with management planning 5-6% store-week growth for 2026. Comparable sales keep growing at a few percent a year through traffic and menu pricing. Margins stay near today's compressed level rather than recovering, because management expects about 7% commodity inflation and 3-4% labor inflation in 2026, with only about 45% of 2026 commodity costs locked in. Per-share earnings grow 6% in year one, 8% a year in years two to five and 6% a year in years six to ten. Modest buybacks keep the share count drifting down, as they have from 71.1 million diluted shares in 2016 to 66.5 million in 2025. After year ten, new-unit growth is assumed to stop. Earnings then rise about 2% a year for twenty more years on menu pricing alone, based on the company's record of passing cost inflation through while keeping restaurant margins in a mid-to-high-teens band. We give no value beyond year thirty, because restaurant concepts do not have a proven life of many decades. Bear case, about $44 per share. The beef cost cycle and state-mandated wage increases, both named in the latest annual report, keep squeezing margins. Earnings fall another 10% in year one, then grow only 2-3% a year for a decade as price increases start to cost traffic. Earnings stay flat for ten years after that, and we give nothing beyond year twenty. Balance-sheet leverage is low, so the downside comes from margins, not debt. Bull case, about $150 per share. The cattle cycle turns and restaurant margin returns to the 17% the company earned in 2024. Unit growth runs at the top of the plan as Bubba's 33 adds more units, and comparable sales keep their recent 5% pace. Earnings grow 12% in year one, 11% a year through year five and 8% a year through year ten, then about 3% a year for thirty more years. What would make this estimate wrong. The main risks are a lasting fall in guest traffic if menu prices keep rising faster than incomes, or beef costs staying high for years. The main thing that could make the estimate too cautious is our treatment of new-restaurant spending as ordinary upkeep. If most of that spending is really growth investment, the business's underlying earning power is well above $3.73 per share. We did not change the method to reflect this, but the bull case partly captures it. The company's growth record and its restaurant economics are well documented in its filings. The uncertainty is the level of margins, not whether the business works. Margin-of-safety price. The margin-of-safety price is about $63 per share. That is a discount of roughly one-third to the base case, a little more than the estimate would require of a steady operating business, because restaurant margins move with beef prices. It is also comfortably above the bear case.