Brinker International, Inc. EAT relies on expansion and other sales-building initiatives to drive top-line growth while franchising aids the company’s bottom line. With a decent share price appreciation and a Zacks Rank #2 (Buy), Brinker is currently a profitable investment choice.
Shares of Brinker have outperformed its industry in the past year. The stock gained 24.8% compared with the industry’s rally of 18.6%.
Moreover, an upward revision in earnings estimates for 2018 reflects analysts’ confidence in the company’s future earnings potential. Over the past 60 days, the Zacks Consensus Estimate for earnings in 2019 has been revised upward by 2.4%. Further, the company delivered positive earnings surprise in two of the trailing four quarters, the average beat being 4%.
Moreover, per VGM Score that identifies the most attractive value, growth and momentum characteristics, Brinker has a Score of A, indicating that the stock is most likely to outperform.
Let’s delve deeper into other factors that make this stock a solid pick.
Sales-Building Efforts — Key Growth Driver
Brinker remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives. Particularly emphasizing on menu innovation to propel revenues, the company started a plan — Vision 2020 — in 2016 that would enable it to gain market traction to achieve long-term earnings per share growth target of 10-15%.
Coming to expansion initiatives, Brinker is one of the fast-casual restaurant chains that has been gearing up for international expansion, especially in the faster growing emerging markets. Though it is experiencing some headwinds in the Middle East, the company’s Latin American business has been solid.
In fiscal 2018, the company opened 34 restaurants. It has already opened 14 restaurants in fiscal 2019 and expects to open 34-40 restaurants globally in the same year, which will include new markets like Asia, with focus on China and Vietnam.
Additionally, over the past few quarters, Brinker’s remodeling efforts have gained momentum, leading to improvement in sales. In fact, the company continues to invest in a brand-wide reimage program that is likely to drive traffic and comps over the next three years.
Moreover, Brinker effectively uses social media platforms and email database to drive customer awareness and boost traffic. The company’s To-Go platform was the fastest growing segment. At Chili's, the company’s To-Go business increased 20% in second-quarter fiscal 2019, following 17% gain in the last reported quarter.
Backed by such sales-building initiatives, Brinker’s revenues increased 2.6% year over year in the first six months of fiscal 2019. The Zacks Consensus Estimate for revenues in fiscal 2019 is pegged at $3.2 billion, reflecting 2.3% growth from fiscal 2018.
Focus on Franchising Favors Earnings
In order to survive in an industry that is increasingly relying on franchising, Brinker shifted from initial company-owned restaurant model to a franchised one. The company pursues expansion through franchisees and partnerships. Although franchising weighs on near-term revenues as it replaces company-operated sales with franchised sales, it helps reduce the company’s capital requirements and drive earnings over time.
Arguably, earnings growth is of utmost importance for determining a stock’s potential as surging profit levels often indicate solid prospects (and stock price gains). In fiscal 2019, Brinker’s earnings per share are expected to grow 10%.
While Brinker is fairly undervalued compared with its own range, a look at the company’s dividend yield shows that the stock is a rewarding investment choice for investors right now. Brinker’s current dividend yield stands at 3.4% compared with the industry’s figure of 0%.
Other Key Picks
Some other top-ranked restaurant stocks are Starbucks SBUX, El Pollo Loco LOCO and Darden DRI. While Starbucks currently flaunts a Zacks Rank #1 (Strong Buy), El Pollo Loco and Darden carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings for Starbucks, El Pollo Loco and Darden for 2019 are projected to increase 12.4%, 10.1% and 18.3%, respectively.
Zacks' Top 10 Stocks for 2019
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