Brinker International, Inc. (EAT) recently reported its 4th consecutive positive earnings surprise, driven by solid comparable store sales growth.
Management initiated bullish guidance for its fiscal year 2012 off of the strong quarter, prompting analysts to revise their estimates significantly higher. This sent the stock to a Zacks #2 Rank (Buy).
Based on consensus estimates, analysts expect 21% EPS growth in 2012 and 17% growth in 2013. On top of this, the company pays a dividend that yields a solid 3.0%.
Valuation looks attractive too, with shares trading at just 11.4x 12-month forward earnings.
Company Description
Brinker International owns, operates or franchises 1,579 restaurants under the Chili’s Grill & Bar (1,534 restaurants) and Maggiano’s Little Italy (45 restaurants) brands.
The company is headquartered in Dallas, Texas and has a market cap of $1.8 billion.
Fourth Quarter Results
Brinker reported results for its fiscal fourth quarter on August 11. Earnings per share came in at 48 cents, beating the Zacks Consensus Estimate by a penny. It was a 9.1% increase over the same quarter in 2010.
Total revenues came in at $717.5 million, ahead of the Zacks Consensus Estimate of $707.0 million. Revenues were down 3.4% year-over-year due to an additional operating week in the fourth quarter of last year.
Comparable store sales rose 2.6%, however, consisting of a 2.1% increase at Chili’s and a 5.7% increase at Maggiano’s.
Total operating costs and expenses held steady at 91.5% of total revenue.
Outlook
Following its Q4 results, management initiated earnings guidance for 2012 of $1.80-$1.95 per share on revenue and comparable sales growth of 2-3%. This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2012 is now $1.84, within guidance, and corresponding with 21% EPS growth. The 2013 consensus estimate also moved higher and is currently $2.14. This represents EPS growth of 17% over 2012.
Management at Brinker expects this kind of growth to continue over the next few years too. CEO Doug Brooks recently stated that the company is confident that it can double its earnings per share by 2015. That equates to annual EPS growth around 18%.
The company expects to hit this target through a mix of comparable sales growth, margin expansion and share repurchases.
Dividend
In addition to this growth, Brinker pays a dividend that yields an attractive 3.0%. Since it began paying a dividend in late 2005, Brinker has raised it at an average annual rate of 15.7%, including a recent 14% increase.
With a payout ratio of 36% and strong growth projections, expect these dividend hikes to continue.
Valuation
The valuation picture looks attractive with shares trading at just 11.4x 12-month forward earnings, a significant discount to the industry average of 16.5x and its 10-year historical median of 14.7x.
Its PEG ratio is only 0.8 based on a 5-year annual EPS growth rate of 13.5%.
The Bottom Line
Brinker International offers investors strong growth and very solid income. With a PEG ratio of just 0.8, valuation looks attractive for this Zacks #2 Rank (Buy) stock.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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