On Tuesday, Argus raised its rating on Brinker International Inc . (NYSE: NYSE:EAT) stock from Hold to Buy, setting a price target of $72.00. Brinker, known for its Chili's Grill & Bar and Maggiano's Little Italy restaurant chains, has been implementing strategic changes to combat the adverse effects of the pandemic and cost inflation that had previously thinned its margins.
The company's new CEO has been pivotal in turning around its financial health by increasing menu prices, reducing discounting, and streamlining operational processes. These efforts have been complemented by a revamped menu and better employee retention strategies.
The early signs are positive, with revenue and margins showing an upward trajectory, partly due to a new television advertising campaign.
Brinker's management has recently engaged with Wall Street, setting and beginning to achieve aggressive financial targets. From a technical perspective, Brinker's stock has demonstrated a bullish trend with consistent higher highs and lows since July 2022.
In terms of valuation, Brinker's shares are trading at 14 times the projected earnings per share (EPS) for the fiscal year 2025. This valuation sits comfortably in the middle of its historical annual range of 11 to 20 and closely aligns with the average multiple of 15 within its peer group, which includes companies like CAKE and CBRL. Despite this, Brinker has been trading at a slight discount on a price/sales basis compared to its peers.
Argus believes that the improved EPS outlook for Brinker justifies a higher valuation, leading to the upgrade in the stock's rating to Buy with a price target of $72. This adjustment reflects the firm's confidence in Brinker's ongoing recovery and growth potential.
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