Brinker International’s Price Dip is an Appetizing Entry Point

Key Points

• Brinker International is down but not out: investors are buying this dip. 
• The company is growing and widening its margin and earnings despite missing the forecasts. 
• An inflection point was reached, with shareholder equity turning positive in Q4. 

Brinker International’s NYSE: EAT stock price fell 15% following its Q4 release, which presented an appetizing dip for investors to snack on. Weaker-than-expected earnings and softer-than-expected guidance caused the dip, but that is the worst news to be found. The remaining details prove the company’s strategy is working. Brinker International is growing, improving margins and shareholder value, and setting itself up for longer-term success. Among the details impacting the earnings are increased operational quality and customer satisfaction costs, which will help sustain growth over time and diminish in future quarters. 

Brinker International operates and franchises the Chili's Grill & Bar and Maggiano's Little Italy restaurant brands. Additionally, the company runs the virtual brand It's Just Wings.

Brinker International Had a Good Quarter, But the Market Wanted More

Brinker International had a good quarter despite missing earnings estimates. The company’s revenue grew by 11.1% to $1.2 billion and beat the consensus reported by MarketBeat by 350 basis points. The strength is due to a 13.5% increase in comps at Chili’s offset by slower 2.5% growth at Maggiano’s. Chili’s growth is attributed to a 5.9% increase in traffic compounded by increased menu pricing. The launch of the Big Smasher burger was also cited as a traffic driver. Growth in the core business would have been stronger without the strategic decision to deemphasize virtual brands like It’s Just Wings, which operate out of Chili’s locations. 

Margin and profits are why the stock price fell. The company reported $1.61 in adjusted earnings to miss the consensus by $0.11 or 625 basis points. However, as bad as the miss is, it is offset by the fact that the restaurant-level operating margin and the system-wide operating income margin rose, resulting in a leveraged gain on the bottom line. The GAAP and adjusted earnings are up compared to last year, adjusted by nearly 16%, and margin improvements are expected to stick. 

Guidance echoes the Q4 results in that revenue is expected to grow at an above-consensus pace, but margins will not expand as much as forecasted. The company is targeting $4.55 in adjusted earnings compared to the consensus of $4.78, which is not good for market sentiment.

Brinker International Reached an Inflection Point in Q4 F2024

The real takeaway is that the company reached an inflection point in Q4. The company’s efforts to improve operations and operational quality improved cash flow to the point that cash is building on the balance sheet while it pays down debt and reinvests in the business. The net result is that the shareholder deficit dwindled to zero and turned positive and is expected to continue improving in F2025. Leverage remains high at 20x equity but is also expected to fall dramatically over the coming quarters. 

MarketBeat did not track any analysts' revisions within the first few hours of the release, but the trends are positive. Sixteen analysts have pegged the stock at a consensus of Hold, showing a relatively high conviction in the $57.60 consensus price target. The consensus price target lags the market even with the double-digit price implosion but is rising and up 55% from last year, providing substantial support in alignment with the critical 150-day EMA. 

Brinker Falls Into the Buy-Zone: Institutions Are Scooping Up This Stock

Institutional activity in this stock has been robust for the last year. The institutions have bought on balance for four consecutive quarters and own more than 90% of the shares. Their activity aligns with the rise in share prices and will likely continue to support the stock at current levels. The early indications are that the market is buying the price dip and giving a strong buy signal. The signal strength is indicated by the spike in volume, confirming support above the recent low. Brinker International stock may consolidate at these levels for the next few months, but a move below $57.50 is not expected, and a new all-time high is likely sometime in 2025.