On Wednesday, Barclays updated its outlook on Brinker International (NYSE: NYSE:EAT), the parent company of Chili's Grill & Bar, by increasing its price target to $95.00 from the previous $76.00. The firm maintained an Equalweight rating on the stock.
Barclays acknowledged Brinker's strong performance in the second year of its turnaround efforts under new leadership. The company's momentum not only continued but also accelerated into fiscal year 2025 (F25). Brinker's initial F25 guidance had conservatively factored in a potential macroeconomic slowdown.
However, Chili's first-quarter F25 comparable sales, including October's, did not show any signs of a slowdown and significantly outperformed industry averages, prompting a substantial upward revision of the full-year F25 guidance.
Despite the positive developments, Barclays suggested that the current share price has already incorporated the favorable results and outlook, as indicated by Brinker's stock outperforming year-to-date (YTD), with an approximate 143% increase compared to the roughly 25% gain of Barclays' coverage universe and the S&P 500's 22% rise.
Barclays praised the CEO's vision and expressed optimism about Brinker's future opportunities. However, the firm also advised caution due to the broader casual dining sector's vulnerability to economic downturns, which have not yet affected Chili's. Investors have been wary of assuming a return to sustained positive customer traffic, accelerated unit growth, and mid-teens restaurant margins.
Finally, Barclays commented on Brinker's valuation, noting that the stock is trading at around 11 times the estimated EBITDA for F25, compared to a 6.5 times three-year forward average. The new price target of $95 reflects Barclays' view that the shares are fairly valued at the current levels.
In other recent news, Brinker International, the owner of Chili's and Maggiano's, reported first quarter fiscal 2025 results that exceeded analyst predictions. The company's robust sales growth at Chili's contributed to this success.
The adjusted earnings per share were reported at $0.95, surpassing the analyst estimate of $0.69. Revenue for the quarter was $1.13 billion, exceeding the consensus estimate of $1.1 billion and indicating a 12.5% increase from the previous year.
Overall, comparable restaurant sales rose by 13.0%, with Chili's experiencing a 14.1% increase and Maggiano's a 4.2% growth. The company's strong performance was attributed to factors such as menu pricing, higher traffic, and successful advertising campaigns.
For fiscal year 2025, Brinker International issued guidance for earnings per share ranging from $5.20 to $5.50, compared to the analyst consensus of $5.35. However, the company's revenue forecast of $4.7 billion to $4.75 billion fell slightly short of the $4.77 billion consensus estimate.
InvestingPro Insights
Recent data from InvestingPro adds further context to Barclays' analysis of Brinker International (NYSE: EAT). The company's market capitalization stands at $4.68 billion, reflecting the significant stock price appreciation noted in the article. Brinker's P/E ratio of 30.07 and its adjusted P/E ratio of 24.36 for the last twelve months as of Q4 2024 indicate that investors are willing to pay a premium for the company's earnings, likely due to its strong performance and improved outlook.
InvestingPro Tips highlight that 11 analysts have revised their earnings upwards for the upcoming period, aligning with Barclays' positive assessment of Brinker's turnaround efforts. The stock's strong return over the last year, with a remarkable 190.45% price total return, corroborates the article's mention of Brinker outperforming the market year-to-date.
However, investors should note that the RSI suggests the stock is in overbought territory, which may support Barclays' cautious stance on valuation. Additionally, Brinker is trading near its 52-week high, with the current price at 98.15% of its peak, potentially limiting further short-term upside.
For readers interested in a more comprehensive analysis, InvestingPro offers 16 additional tips for Brinker International, providing a deeper understanding of the company's financial health and market position.
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