Brinker International Earnings Preview

Brinker International

EAT

is scheduled to report fourth-quarter fiscal 2011 results Thursday, August 11, before the markets open. Per-share earnings and revenues have crept upward in the past three quarters, but investors will be looking for more convincing signs that the restaurant operator's fortunes have turned around. Analysts are looking for Brinker to report quarterly earnings of $0.47 per share on revenues of $710.6 million. That compares to $0.44 per share and $743.1 million in the same period of last year. That EPS estimate is up by a penny from 60 days ago. Full-year earnings are anticipated to have risen 21.9% from a year ago to $1.51 per share, while revenues are expected to have fallen 3.6% to $2.8 billion. The full-year EPS estimate has not changed in the past 60 days.

The Company

Dallas-based Brinker International operates and franchises restaurants under the Chili's Grill & Bar and Maggiano's Little Italy brand names. It has more than 1,500 locations in countries in North America, Europe, Asia and South America. It also holds a minority stake in the Romano's Macaroni Grill chain. Brinker was founded in 1975 and now has a market cap of $1.8 billion. During the three months that ended in June, Brinker announced an additional $250 million in share buybacks and posted better-than-expected third-quarter results due to increased traffic at Chili's Grill.

Looking Ahead

Analysts so far expect to see year-over-year growth of 25.0% for earnings and 1.5% for revenue in the current quarter. Note that analysts have underestimated per-share earnings in four of the past five quarters, and the miss was by just 2 cents per share. Revenues topped expectations in the previous two quarters.

Performance

Brinker's long-term EPS growth rate forecast is 13.0% and its return on equity is 24.8%. The price-to-earnings ratio is 14.5 and the PEG ratio is 1.1. Cash flow from operations has risen in the past three quarters. After the recent pullback, shares are trading more than 4% higher year to date, but the price is still more than 42% higher than a year ago. The stock has outperformed competitors Darden Restaurants

DRI

and Dine Equity

DIN

, as well as the broader markets, year to date.

Action Items:Bullish:

Traders interested in exchange traded funds that are invested in Brinker might want to consider the following trades:

SPDR S&P MidCap 400 MDY: up more than 8% since the beginning of the year
iShares S&P MidCap 400 Index IJH: up more than 8% since the beginning of the year

Bearish:

Traders more interested in Brinker's competitors may want to consider these alternate positions:

Kona Grill KONA: up more than 78% since the beginning of the year
Red Robin Gourmet Burgers RRGB: up about 58% since the beginning of the year
Buffalo Wild Wings BWLD: up more than 24% since the beginning of the year
Cheesecake Factory CAKE: up more than 10% since the beginning of the year

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