Shares of Brinker International, parent of Chili’s Grill & Bar, may continue rallying, according to BMO Capital analyst Andrew Strelzik.
Callaghan O’Hare/Bloomberg
Brinker International stock is rising on Tuesday, a day after it gained more than 6%, as BMO Capital Markets argued that shares of the parent of Chili’s Grill & Bar represent a “compelling opportunity.”
Analyst Andrew Strelzik reiterated an Outperform rating on Brinker (ticker: EAT) stock and raised his price target to $83 from $80. The move comes as—Monday’s pop notwithstanding—the shares have lagged in the last three months, leading valuation to become disconnected from the company’s “intact and compelling” earnings potential, which seems more robust than he previously modeled.
He estimates that Brinker’s postpandemic earnings power can top $6 a share—up from $1.71 in 2020 and his estimate of $3.13 this year. That’s based on his belief that some 95% of dine-in business will return, even as off-premise takeout and delivery orders remain 35% above pre-Covid levels.
In addition, Strelzik writes that he sees a “highly plausible path” for the company’s virtual brand sales to reach $250 million, even as investors are concerned about the sustainability of this segment’s growth. While Brinker’s off-premises-only brand It’s Just Wings will likely see some deceleration from last year, he still thinks it and other virtual brands will be able to perform above expectations.
Inflation is a worry, but he thinks that this is less of a concern for Brinker investors, given that restaurants as a whole have noted that recent trends look manageable. The company itself has commodities contracted out to 2022, and already mostly completed rehiring efforts before the recent labor crunch.
Brinker stock is up 1% to $60.75 at recent check, after climbing 6.4% on Monday. Barron’s recommended the shares this weekend. The stock is up 6.3% year to date, and has doubled in the past 12 months.
Write to Teresa Rivas at [email protected]
