Why Wedbush Is Bullish On Brinker International

Wedbush Securities analysts expect post-COVID-19 growth to outpace pre-pandemic growth rates, resulting in bullish sentiment on shares of Brinker International, Inc. EAT.

The Brinker Analyst: Wedbush Securities analyst Nick Setyan initiated coverage on shares of Brinker International with an Outperform rating and $81 price target.

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The Brinker Takeaways: Upon further analysis of Brinker’s restaurant portfolio, many estimates are conservative, Setyan said in a Wednesday initiation note. 

In the near-term, consensus estimates for Chili’s fourth-quarter same-store sales growth sit at 57.3%, yet Wedbush analysts believe that number will be closer to 60.2%, the analyst said. 

Average weekly sales are extremely conservative in the medium-term, as they are based on pre-COVID-19 data and do not follow management’s expectations, he said. 

Additionally, the consensus estimates disregard management’s expectations for average weekly sales forecasts on newer initiatives like It’s Just Wings, Setyan said. 

Finally, the shift from traditional media marketing to digital and loyalty programs, particularly in the It’s Just Wings app, “could prove to be a more effective and efficient driver of sales,” the analyst said. 

The modeled revenue growth also expands unit-level margin estimates by 22-40 basis points for FY22 and FY23, he said.  Management also targets a 1.5-2.% company-owned unit growth rate through FY23, which would deliver 20%-plus cash on cash returns, said Setyan.

The $81 price target results from a combination of Wedbush’s revised forecasts and a 13.5 P/E multiple on an estimated $6.01 FY23 EPS.

EAT Price Action: Shares of Brinker International were down 2.45% at $59.22 at last check Thursday.