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“Another name in the dining space out with earnings just a few minutes ago as well - Brinker International, this company owns and operates Chili’s as well as On the Border and various restaurant franchises. The company beating the street by 4 pennies but the revenue came in shy, but it is its guidance that is hitting them, the stock is down in premarket, the company says that its fiscal 2010 numbers will be about half of what the street is expecting, so we’re seeing some pressure on Brinker International Corporation this morning.”– Fox Business’ Money for Breakfast 8/6/2009

Even though Brinker International (EAT) reported a better than expected fiscal fourth quarter, EPS of 52 cents versus estimates of 48, the stock is getting crushed because of the company’s gloomy outlook. To say that Brinker lowered guidance would be a bit of an understatement; they slashed guidance. The Street was expecting the restaurateur to achieve 30 cents per share in net income for the first quarter 2010, but instead EAT came out with an expected range of $.12 to $.14 per share. Shares are trading nearly 17% lower in morning activity.

EAT The blow to guidance adds to concerns that the Brinker earnings beat over the last quarter was related more to cost cutting than actual growth. In fact, revenue was a weak point of the last quarter’s results coming in at $829.4, which is down 22.5% from a year ago. Analysts were expecting a more subtle drop of 20%, although even that would have been distressing. Brinker’s struggles shows that, at least in casual dinning restaurants, consumers are eating out less. One of Brinker’s biggest competitors, Darden Restaurants (DRI) is selling off 5% today because of Brinker’s weak results.

These results suggest that the more than 400% appreciation that Brinker has had since hitting its lows in November are a little premature. Our methodology holds that this stock is Fairly Valued in the mid teens, but the lowered outlook takes our view of the stock’s fair price down with it. Prior to these results, we would have thought anything below $14 would be a price where long term investors should start to pay attention. However, the greatly lowered outlook as well as a balance sheet that has too much debt for a company with falling revenue, makes us a lot more cautious about these shares. Crowd sentiment, as rated by the CAPS survey of investors, is negative on the potential for Brinker to beat the market going forward as well. Unfortunately, we just don’t see a catalyst to right this ship any time soon, and so we are advising investors look elsewhere for value stocks.

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Source: Brinker Int'l Sees a Difficult Quarter Ahead