Eating out these days is not exactly high on a lot of people’s plans. After all, things are a little weird economically right now. Layoffs are dominating the headlines. So paying a hefty price for a big dinner is not really front-and-center. But for Brinker International (EAT), things are still going reasonably well as Chili’s looks like a good enough plan for a quick dinner. Investors were less sure, and shares slipped around 2.5% in Wednesday afternoon’s trading.
Goldman Sachs, by way of analyst Christine Cho, took a closer look at Brinkman after it posted its earnings, and liked a lot of what it found therein. Cho kept her Buy rating in place on the stock, and also hiked the price target from $190 to $191. That may not sound like much of a hike, but compared to where Brinker closed on Tuesday, Cho is looking for a growth rate of around 40%.
The market is “under-appreciating” Brinker, Cho notes, particularly when it comes to the turnaround that Chili’s has made over the last several months. That is helping set Brinker in general up for a much better run, as Chili’s has managed to grow both sales and traffic. Moreover, Chili’s has not released any new menu items in that time frame, nor offered any specials. Thus, Chili’s has added all this new sales and traffic without outside impetus. While further growth is unlikely, losses are just as unlikely, and that gives Brinker a solid beachhead. It also gives Brinker a battle plan for its other brands like Maggiano’s.
Tariffs? No Problem.
Better yet, other reports suggest that Brinker will be able to take the hit from tariffs without having to break its streak of improvement. Value has been a big, big part of Chili’s comeback, including the “3 for Me” menu deal that featured three items for just $10.99, which is a significant savings over even many fast food alternatives.
The good news is that 80% of Brinker’s sourcing is domestic. Thus, for the 20% that actually still might be subject to tariffs, its pricing strategy should be able to step up and fill in the gap fairly well. That combination of factors is starting to draw attention, and is showing in Chili’s turnaround. If the rest of the Brinker brands follow suit, this could be a good day for Brinker.
Is Brinker a Good Stock to Buy?
Turning to Wall Street, analysts have a Hold consensus rating on EAT stock based on one Buy and six Holds assigned in the past three months, as indicated by the graphic below. After a 145.55% rally in its share price over the past year, the average EAT price target of $165.43 per share implies 23.88% upside potential.
