Brinker International (EAT) has recently been on the list of Zacks.com’s Most Searched Stocks, so it may be wise to consider some key factors that could affect this stock’s performance in the near future.
Shares of the company, which operates restaurant chains Chili’s Grill & Bar and Maggiano’s Little Italy, have risen +2.6% over the past month versus a +4.1% gain for the Zacks S&P 500 Composite Index. The Zacks Retail – Restaurant industry, which Brinker International belongs to, has fallen 4% in that same period. The big question here is, where is the company’s stock headed in the near term?
While media reports or rumors of major changes in a company’s business prospects usually influence the movement of that company’s share price, leading to immediate price movements, there are always certain fundamental factors that ultimately drive a buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company’s future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
It essentially looks at how sell-side analysts covering the stock are revising their earnings forecasts to reflect the impact of the latest business trends. As a company’s earnings forecasts rise, so does the fair value of its stock. If the fair value is higher than the current market price, investors will be interested in buying the stock, driving the share price up. This is why empirical studies have shown a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
Brinker International is projected to post earnings of $1.51 per share for the current quarter, which would represent a +8.6% change from the year-ago period. Over the past 30 days, the Zacks Consensus Estimate has changed +0.5%.
The consensus earnings estimate for the current fiscal year is $4.02, indicating a change of +42.1% year over year. This estimate has changed +0.5% over the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is $4.49, representing a +11.8% change from what Brinker International was expected to report a year ago. Over the past month, estimates have changed +0.5%.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide a more certainty view into near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, have earned Brinker International a Zacks Rank #2 (Buy).
The chart below shows the evolution of the company’s consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
Revenue growth is arguably the best indicator of a company’s financial health, but if a company can’t grow its revenue, then nothing happens. After all, it’s nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it’s important to know a company’s revenue growth potential.
For Brinker International, the consensus revenue estimate for the current quarter is $1.14 billion, indicating a change of +6.1% year-over-year, while estimates for the current and next fiscal years are $4.35 billion and $4.48 billion, indicating changes of +5.2% and +3%, respectively.
Last reported results and surprise history
Brinker International reported revenue of $1.12 billion in its most recent quarter, up 3.4% from the same period a year ago. EPS for the quarter was $1.24, up from $1.23 a year ago.
Compared to the Zacks Consensus Estimate of $1.12 billion, reported revenues represented a surprise of +0.15%. EPS surprise was +7.83%.
The company has beaten consensus EPS estimates in each of the last four quarters, and revenue has surpassed consensus estimates two times during that period.
evaluation
No investment decision can be made efficiently without taking into account stock valuation. Whether a stock’s current price properly reflects the intrinsic value of its business and the company’s growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company’s valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company’s historical values ​​helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock’s valuation.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
Brinker International is rated an A in this regard, indicating that it is trading at a discount relative to its peers. To see the values ​​of the valuation metrics that drove this rating, click here.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether it’s worth paying attention to the market buzz around Brinker International, although its Zacks Rank #2 suggests it has the potential to outperform the overall market in the near term.
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Brinker International, Inc. (EAT) : Free Stock Analysis Report
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