Brinker International (EAT), owner and operator of the Chili's Grill & Bar and Maggiano's Little Italy restaurant franchises, is trading around $30.40 versus its 52-week range of $21.83-$36.24, up 40% in the past 1-year. The stock trades at a P/E multiple of 13 times, and yields 2.8%. The stock trades at a slight discount to the peer group average of 15 times. Brinker's 3-year multiple range is 10-16 times, and the average has been 13 times. Others in its peer group such as Darden Restaurants (DRI) trades with a P/E multiple of 13 times, and yields 3.8%. Texas Roadhouse (TXRH) trades with a P/E multiple of 17 times, and yields 2%. The attractive valuation and dividend yield makes Brinker an attractive name for further analysis.
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Positive fundamentals: On November 8th, 2012, Brinker announced that Chairman and CEO Doug Brooks will turn over the position to Chili's President, Wyman Roberts. Overall this news is not alarming considering Doug Brooks, now 60, might be getting prepared to retire. Also, Wyman Roberts is expected to be a very successful successor given his recent outperformance with Chili's.
Brinker has $60 million in cash and cash equivalents on its balance sheet, and continues to generate free cash flow, with $178 million in 2012, and $200 million expected in 2013. Availability under the company's credit line was $120 million as per September 26th, 2012.
Brinker's remodeling program and new product launches will add capacity for growth beyond 2013. Although not a short-term catalyst, this is a long-term positive for the fundamentals.
Commodity pricing could prove favorable for 2013 with 80% of commodities contracted through 2012 and 35% contracted through 2012. COGS are expected to be flat for 2013.
Risky fundamentals: In the Q1-2013 quarterly call, management indicated that October same-store-sales are trending lower, and might be lower than prior guidance. Do also keep in mind that Brinker had about 35% of its outlets in the hurricane zone. This will have a significant negative impact on traffic.
Brinker has significant debt on its balance sheet with $231 million outstanding in a term loan, $290 million in unsecured debt, and $130 million outstanding in the revolver.
The stock's valuation is in an attractive position to prompt investors to put Brinker on their radar screen.