The big news Tuesday morning was the announcement by Starbucks (SBUX) that CEO Laxman Narasimhan was stepping down immediately to be replaced by Chipotle Mexican Grill (CMG) CEO Brian Niccol.
Naturally, SBUX shares were up in pre-market trading, and CMG shares were down. This is a big gain for Starbucks and a big loss for Chipotle.
Another restaurant stock making waves is Brinker International (EAT), the parent of the Chili’s and Maggiano’s concepts. On Monday, it entered the 82nd spot on Barchart’s Top 100 Stocks to Buy.
Its weighted alpha of 106.15 is considerably higher than its 52-week performance of 82.42%. This suggests that Brinker stock has some momentum left and could be a good buy despite the gains already achieved in the past year.
Here’s why.
Analysts Don’t Like It
There is no question from an analyst’s perspective that Brinker is not a favored son. Of the 17 that rate it according to Barchart data, only five give it a Buy (3.24 out of 5), with a mean target price of $61,77, well below where it’s currently trading.
Fortunately, analysts don’t always get it right.
As for the Barchart Technical Opinion, it suggests that it’s a 72% Buy with an Average short-term outlook on maintaining the current direction. So, you probably won’t see a big reversal in the near term.
The only time EAT stock has traded higher was on March 15, 2021, when it hit an all-time high of $78.33. As I write this pre-market, it’s right on $70, with the stock futures pointing higher.
In the past 12 months, EAT has hit a 52-week high 49 times. It’s just less than 10% from its 52-week high of $76.02.
In terms of options activity, Brinker's options volume was over 3,500 each of the last two days. It hasn’t done that since late April, before it announced its third-quarter results. Over the past year, it had daily options volume over 3,000 on just 15 occasions, two of them in the past two trading days. I expect that the volume will pick up as Tuesday's trading moves along.
There is no question that the options activity in the past few months has picked up compared to this time last year. The Put/Call Volume and Put/Call OI ratios remain bullish.
Why Investors Might Like It
Brinker reports its Q4 2024 results tomorrow before the markets open. The company expects its non-GAAP earnings per share for 2024 to be $3.90 at the midpoint of its guidance with $4.34 billion in revenue. Analysts have an estimate of $4.18 for 2024 and $4.73 for 2025.
If it hits the analyst estimate, it will have delivered EPS growth of nearly 48% in 2024, considerably higher than the 13% growth expected in 2025. It’s important to note that Brinker has delivered positive earnings surprises in each of the last four quarters, averaging about 6% higher than the consensus for each of the past four quarters.
There is no question that Chili’s is performing better than Maggiano’s.
Its same-store sales growth in Q3 2024 was 3.5%, 180 basis points higher than Maggiano’s. Meanwhile, the former’s restaurant operating margin was 14.1%, 90 basis points higher than a year earlier, with a 10.6% increase in restaurant operating profits due to higher menu prices, to $139.1 million.
In the third quarter, Chili’s accounted for 89% of the company’s total revenue compared to 11% for Maggiano’s. There is no question Chili’s is driving the bus.
“Our strong third quarter results were driven by the continued progress on guest experience, team member experience, and traffic driving initiatives,” said Kevin Hochman, Chief Executive Officer and President of Brinker International. “Those initiatives are allowing us to significantly outperform the industry on sales and traffic as well as continue to improve our restaurant four wall economics.”
One thing that might go unnoticed but shouldn’t is the depth of Brinker’s management.
In February, the company announced that Joe Taylor, EVP and Chief Financial Officer, would retire at the end of June after nearly 25 years at Brinker. He was replaced by Mika Ware, the company’s VP of Finance, Investor Relations, and Restaurant Development. Ware has been at Brinker for 35 years.
Clearly, people don’t mind working at Brinker, or they would have moved on a long time ago.
The Bottom Line on Brinker Stock
Brinker stock currently trades at 17.7x the company’s 2024 EPS estimate. Based on the analyst 2025 estimate, the multiple drops to 14.6x.
According to S&P Global Market Intelligence, Brinker’s enterprise value of $5.06 billion is 1.2x its trailing 12-month revenue.
That’s considerably cheaper than many of its sit-down dining peers. So, despite its move over the past year, by at least this metric, it’s still reasonably priced relative to its competitors.
Brinker is a buy for aggressive investors.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
