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RBC Grows An Appetite For Chili's Parent Company

Jayson Derrick

Brinker International, Inc. (NYSE: EAT), the parent company of Chili's and Maggiano's Little Italy restaurant concepts, is trading at an attractive valuation that doesn't reflect its growth prospects, according to RBC.

The Analyst

RBC Capital Markets' David Palmer upgraded Brinker from Sector Perform to Outperform with a price target lifted from $40 to $49.

The Thesis

Brinker's Chili's restaurant concept accounts for 85 percent of the total company's sales and like experienced poor weather trends in the first quarter of 2018, Palmer said in the note. But after a "rough start" in January trends likely improved to "slightly positive" in February and "finished strong" in March due to a compelling three for $10 platform, improved advertising, easing weather impact and success from a relaunched loyalty program.

Despite recent momentum in Brinker's stock since mid-February, shares continue to trade at an eight-turn discount to its peers on calendar 2018 earnings, the analyst wrote. This makes the company the cheapest valued stock among the entire casual dining group. However, the valuation isn't justified as it doesn't factor in accelerating sales trends, which are likely to remain strong in the back half of the fiscal year and the possibility for the company to post upside to EPS expectations.

Price Action

Shares of Brinker were trading higher by more than 7 percent at $44.51 Friday afternoon.

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