For Canaccord Analysts, Brinker International Stock Isn't Worth The Chase

Following better than expected Q4 results and guidance, as well as the announcement of further share buybacks, Brinker International, Inc. EAT shares have rallied 14.7 percent since August 10.

Canaccord Genuity’s Lynne Collier initiated coverage of the company with a Hold rating and $56 price target.

Stay On The Sidelines

Collier believes the risk/reward is balanced at the current valuation levels, saying, “While it is clear that Chili’s value messaging is resonating and relative SSS performance has improved, we believe that shares mostly reflect this positive view.”

Long term, the analyst believes Chili’s positioning within the bar and grill category in casual dining would continue to be challenging, given the rising discounting and promotions by competitors.

Collier recommends “investors stay on the sidelines to wait for a better entry point.”

Promotions

Mentioning that the back to basics value strategy and higher ad spending have helped stabilize traffic, the analyst pointed out that Chili’s began a new promotion on July 5, “3 for Me,” which offers chips and salsa or a house salad, followed by a choice of three craft burgers and fried, ending with a mini molten cake.

Collier expects Brinker International to launch a revamped happy hour promotion, as well as a Margarita Thursday promotion. The company is also expected to increase ad spending, focusing more on TV, as compared to digital.

“The addition of a value platform and increased advertising have stabilized top-line trends with July SSS flat. That said, we are not recommending chasing shares as the macro backdrop will remain difficult, in our view,” the analyst stated.

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