BTIG Downgrades Brinker, Sees Sales Challenges Likely Remaining

BTIG has downgraded Brinker International, Inc. EAT to Neutral from Buy, saying that Chili's sales challenges could continue for the next several quarters.

Brinker's third quarter adjusted EPS of $1 beat the consensus estimate of $0.98, but the $824.6 million revenue fell short of $843 million estimate as it is pressured by rising competition, and weakness in oil dependent markets.

Only recently, BTIG maintained its Buy rating and $57 price target on Brinker despite cutting its same-store sales estimate for Chili's due to weak industry trends.

Dallas, Texas-based Brinker operates casual dining restaurants under the Chili's Grill & Bar brand name and Maggiano's Little Italy brand. Chili's company-owned comparable restaurant sales declined 4.1 percent, much more than BTIG's estimated 1 percent drop and the 1.2 percent consensus estimate.

"We believe FY17 will prove to be a reset year for both Chili's competitive positioning and the company's EPS growth trend, and do not see enough drivers to maintain our Buy rating," analyst Peter Saleh wrote.

Though the stock is cheap, the analyst expects the increased promotional activity and lapping the beneficial items this year to pressure financial results.

Brinker said it now sees FY16 EPS to be at the bottom end of the $3.55-$3.65 range, while FY17 will likely see flat to very modest EPS growth.

However, the analyst maintained his FY16 EPS estimate of $3.55 but cut its FY17 EPS estimate to $3.63 from $4.01. Street estimates earnings of $3.55 a share for the full year and $3.74 for the next year.

"We would become more constructive on improved same-store sales trends or if management pursued more significant efforts such as real estate monetization," Saleh added.

BTIG does not provide price targets on Neutral rated stocks.