Barron's Says Brinkers is Hot (EAT)

Barron's had a favorable article on Brinker International

in this week's magazine. The restaurant company is the parent of Chili's Bar & Grill. They have 1500 Chili's, including the 827 it owns, and 45 Maggiano's Little Italy restaurants. Brinker with revenues last year of $2.86 billion, well below its fiscal 2007 sales peak of $4.4 billion, has gotten smaller. The company sold an 80% stake in Romano's Macaroni Grill, two years ago, and unloaded the On The Border Mexican Grill & Cantina franchise, earlier this year for $180 million. It also has been closing under performing company-owned stores. Brinker is expected to earn about $122 million, or $1.34 a share, in the fiscal year ending June 2011, up 14% from the prior fiscal year, and toward the lower end of management's targeted range of 10% to 20% profit growth. Analysts have earnings of $1.64 for fiscal '12. If management can stabilize revenue and boost operating margins by four percentage points, as expected, earnings could rise by more than 10% a year. The shares are selling 45% below their 2007 high. Howard Penney, managing director and analyst at Hedgeye Risk Management, thinks the stock could climb about 25%, to 24, in the next year. Brinker is buying back stock, which also will boost per-share earnings. And it is paying investors a 56-cent dividend that translates into a 3% yield. Brinker CEO, Doug Brooks, is simplifying the chain's menu, and updating its kitchens. Chili's installed high-end ovens that can be used to bake bread and pizza, in addition to cooking chicken and steak. "It will allow them to upgrade the menu, offer new products and cut labor," says analyst Penney. With the new ovens, a restaurant that once had six chefs will now need only three. Penney estimates that eliminating one chef will boost restaurant margins by one percentage point. Brinker has just begun rolling out the new equipment, and the results should become apparent by the January quarter.