Brinker International (NYSE:EAT) is a stock on the rise. The American hospitality chain offers diversity in the form of several restaurants — Chili’s Bar & Grill, Maggiano’s Little Italy, and It’s Just Wings — and operates across 29 countries. The firm implemented several positive changes to its operations in recent months and appears to be reaping the benefits. However, I’m bullish because of Brinker’s valuation. The stock has a price-to-earnings-to-growth (PEG) ratio of 0.8x, making it a rare value pick in a crowded U.S. market.
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A Winner in Casual Dining
Casual dining was hit hard during the pandemic, but it’s making a comeback. Brinker has three main restaurant brands, as noted above. Chili’s Bar & Grill offers a classic casual dining experience with a focus on affordable and comforting Tex-Mex food. It’s got a loyal customer base and appears to be winning over new customers in a competitive market.
In fact, a recent viral TikTok suggested that dining in at Chili’s currently represents a cheaper option than a McDonald’s (NYSE:MCD) takeout. Chili’s has a “3 for Me” deal costing around $11 that includes an appetizer, drink, and meal. Despite the viral-nature of the TikTok, it’s worth highlighting that McDonald’s offers a $1 $2 $3 menu, but prices can vary by location. Chili’s has also been voted among the top 50 most popular restaurant chains in the U.S.
Maggiano’s Little Italy offers a more upscale casual dining experience, serving a range of home-comfort Italian food for families and celebrations. It has a smaller footprint than Chili’s, but it caters to a specific niche and is well-regarded across the U.S.
Next, we have It’s Just Wings, a relatively new virtual brand launched in 2020 for delivery and takeout. Brinker initially focused on It’s Just Wings as a delivery-only brand. However, it recently integrated the unit into the Chili’s menu due to weakened demand for virtual brands overall. Overall, data suggests it’s been a useful addition to the company’s portfolio and has allowed Chili’s to gain credibility as a “wing player,” according to Brinker’s CEO.
Promising Developments
Brinker International is also implementing a two-pronged strategy to improve all-important margins. The company’s management team highlighted in the last earnings call that they recently launched a new menu with a 2% increase in pricing. Additionally, the firm has significantly simplified the menu by removing less popular dishes and focusing more on those with stronger margins. This streamlining reduces costs while allowing the firm to focus on its core offerings.
Management also highlighted that it is seeing strong tailwinds from the alcohol department. This is positive, as alcohol is always one of the highest-margin products that restaurants offer. The company says it has been able to more than double the sales of its specialty margaritas—made from a pre-mix and sold for $10 and above—which are extremely profitable. Management also suggested that the addition of wings to Chili’s menu may positively impact alcohol sales.
The company hopes the addition of Coors Light and Miller Lite to the menu will compound this, meaning they now offer the top four beers for happy hour at very attractive price points.
Management’s clear focus is on profitability, and they’re confident these changes will lead to higher margins. Brinker raised its profit forecast for Fiscal Year 2024, anticipating earnings per share between $3.45 and $3.70 and total revenue between $4.30 billion and $4.35 billion. That’s up from revenue of $4.1 billion in Fiscal 2023 and earnings of $2.83 per share.
EAT Stock Is a Strong Value Play
In this increasingly crowded market, it can be hard to find companies with strong and enticing valuation metrics. The company is currently trading at 12.6x forward earnings, putting it at a slight discount to the sector. Meanwhile, analysts see Brinker’s earnings increasing an impressive 16.6% in the medium term.
In turn, the forward earnings metric falls to 11.4x in 2025 and 10.2x in 2026. Collectively, we also have a PEG ratio of 0.8x. While the PEG ratio is, of course, dependent on analysts’ forecasts — which can be wrong — I often find this metric to be the strongest indication of value for non-dividend paying stocks.
Is Brinker International Stock a Buy, According to Analysts?
Brinker International has a Hold consensus rating on TipRanks based on four Buys, four Holds, and three Sells given by analysts in the past three months. The average EAT stock price target is $45.36, implying 4.9% downside potential.
The Bottom Line on EAT Stock
Despite the Hold consensus rating, I remain bullish on Brinker. It’s seeing some strong tailwinds in its business, including improving alcohol sales, and it’s focusing on improving its margins by shrinking the menu to double down on high-margin dishes. From a valuation perspective, it certainly doesn’t look expensive at 12.6x forward earnings, while its 0.8x PEG ratio is the real winner.
