On Thursday, Brinker International (NYSE:EAT), known for its casual dining restaurant brands, received an updated stock price target from BMO Capital Markets following the release of its fourth-quarter earnings for fiscal year 2024. The firm has lowered its price target on the company's stock to $80 from the previous $85, while maintaining an Outperform rating.
The adjustment comes after Brinker International reported earnings per share (EPS) of $1.61 for the fourth quarter, falling short of the consensus estimate of $1.72. According to BMO Capital, the company's investments and stock-based compensation costs were significant factors that offset its comparable sales growth, which was stronger than anticipated.
Despite the lower earnings, Brinker International has introduced its initial earnings guidance for fiscal year 2025, which is below market consensus. However, its revenue forecasts exceed expectations. BMO Capital has adjusted its fiscal year 2025 EPS estimates downward due to the reduced earnings base for fiscal year 2024, resulting in a modest reduction of the price target.
The analyst from BMO Capital expressed a belief that the EPS guidance provided by Brinker International may be on the conservative side. Furthermore, the firm has increased its assumptions for comparable sales growth in fiscal year 2025.
The analyst noted that while a dip in the company's share price was not unexpected due to high market expectations, the more than 10% decline following the earnings report is seen as an overreaction. The rationale given is that Brinker International continues to demonstrate strong top-line momentum, has the potential to exceed its earnings guidance, and maintains a reasonable valuation.
In other recent news, Brinker International, known for its restaurant chains Chili's and Maggiano's, has announced its fiscal fourth-quarter 2024 results. The company has seen a 6.8% annual revenue increase and a 45% adjusted EPS growth, driven by Chili's strong sales and traffic growth. For the fiscal year 2025, Brinker has set a revenue target between $4.55 billion and $4.62 billion, and an adjusted diluted EPS between $4.35 and $4.75.
The company's future strategies include growing traffic, with plans to invest $15-20 million in labor and continue marketing and innovation efforts. However, despite positive comp sales driven by price and mix, Maggiano's reported negative traffic. Brinker also plans to open 10-12 new Chili's restaurants, potentially increasing to 15, and may accelerate Maggiano's development.
These recent developments underline Brinker's commitment to driving traffic and delivering long-term profitable growth through strategic initiatives in marketing, menu innovation, and operational efficiency.
InvestingPro Insights
Following the recent earnings report and subsequent market reaction to Brinker International, InvestingPro data provides a deeper financial context for investors considering the company's stock. Brinker's market capitalization stands at $2.8 billion, and it is trading at a price-to-earnings (P/E) ratio of 20.71, which is noteworthy as it is lower than the adjusted P/E ratio over the last twelve months leading up to Q3 2024 of 15.61. This suggests a relatively attractive valuation in relation to near-term earnings growth, a point underscored by one of the InvestingPro Tips, which highlights the stock's low P/E ratio in the context of its earnings growth potential.
Moreover, the company's revenue growth has been modest, with a 4.98% increase over the last twelve months as of Q3 2024. Despite concerns over weak gross profit margins, currently at 13.7%, Brinker has experienced a substantial 72.83% return over the last year, outpacing many competitors in the casual dining space. This performance is complemented by a significant six-month price uptick of 40.78%, reflecting strong investor sentiment.
Investors should note, as per InvestingPro Tips, that Brinker International does not pay a dividend, which may influence the investment strategy for income-focused portfolios. However, with 10 analysts recently revising their earnings upwards for the upcoming period and the company being profitable over the last twelve months, Brinker International presents a compelling case for investors seeking growth in the restaurant industry. For those looking for more in-depth analysis, InvestingPro offers additional tips on Brinker International at https://www.investing.com/pro/EAT.
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