Brinker Could Be Ready to Rebound in 2017

brinker-chilis

Brinker International Inc. (EAT) seems ready to rebound in 2017.  Brinker owns and operates Chili’s Grill & Bar, and Maggiano’s Little Italy.

At the end of October 2016, Brinker posted its earnings report for the recent quarter.  Revenue for the quarter was $758.5 million.  Wall Street was looking for $773 million in revenue.  The company announced earnings per share of $0.49, which missed analysts’ expectations of $0.55.  For the same quarter in 2015, earnings per share hit $0.56.  Prior to the report, shares of Brinker were trading in the $51 range; shortly after the report, share price dropped to $47.

Brinker will pay a quarterly dividend of $0.34 per share at the end of December 2016.  Brinker’s yearly dividend yield is 2.59%, $1.36 for the year.

The good news is that analysts expect Brinker’s next earnings report to be optimistic.  Analysts are predicting earnings per share of $0.79.  Zacks Research is even more optimistic, expecting Brinker’s earnings per share to be $1.25.   According to estimates, revenue should top $796 million.  The earnings report for the current quarter will be issued near the middle of January 2017.

Right now, Brinker’s share price is $51.46, and bullish analysts place the target price at $60 for 2017.  The bears put the share price as low as $47 for 2017.

All that being said, I think Brinker is ready to rebound in 2017.  In 2015 and 2016, Brinker’s revenue was about $3 billion.  What most people don’t know is that franchise revenue accounts for a mere 3% of Brinker’s revenue, while producing 35% of Brinker’s profit.  In other words, Brinker’s is a cash flow engine.  Over the last six years, Brinker has shifted $2.3 billion back to shareholders, $1.9 billion in buybacks and $384 million in dividend payouts.

According to Jonathan Boyar, Brinker’s management is doing the right things:  promoting beer sales because of higher margins, and making take-out easier and faster to order.  Boyar believes EAT should be trading at $69 per share rather than the undervalued $50 to $51 per share.  Citing Brinker’s recent capital expenditures as a smart long-term move, Boyar maintains that the company’s capital expenditures will begin to pay off in a big way.

At $51 and change, Brinker International is a bargain.  Investors should view EAT as an early Christmas gift.  Now is the time to buy.  Investors should look for revenue growth and increased earnings per share over the course of 2017.  And since Brinker has a track record of returning value to shareholders, investors can look for periodic buybacks and a continued dividend yield of 2.59%.

 

Randy Radic analyzes food stocks for the Exception Magazine.

Image of Chili’s from Instagram.