Wednesday, September 07, 2011

Brinker International Is Nutrition For Your Portfolio

Brinker International (NYSE: EAT) The parent of Chile's and Maggiano's restaurant chains is boosting its margins. And it just boosted its dividend by 14% to $0.16 a quarter. Can owning its shares fatten your bottom line?

Here are three reasons to consider owning Brinker:
  • Good  earnings reports. Brinker has been able beat analyst’s expectations in four of its last five earnings reports.
  • Low valuation. Brinker's price-to-earnings-to-growth ratio of 0.83 (where a PEG of 1.0 is considered fairly priced) means its stock price is cheap. It currently has a P/E of 13.8, and its earnings per share are expected to grow 16.6% to $2.14 in fiscal 2013.
  • Out-earning its cost of capital. Brinker is earning more than its cost of capital – and it’s making progress. How so? It’s producing positive EVA Momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In 2011, Brinker's EVA momentum was 3%, based on 2010 revenue of $2.9 billion, and EVA that improved from 2010's -$32 million to 2011's $39 million, using an 11% weighted average cost of capital.
One reason against:
  • Declining sales and profits and fair balance sheet. Brinker sales and profits have decreased. Its revenue fell at an 8.5% annual rate from $4 billion (2007) to $2.8 billion (2011) while its net income declined at a 9.6% rate from $211 million (2006) to $141 million (2010) — yielding a slim 5% net profit margin. Its debt and cash have declined. Specifically, its long term debt fallen at a 12.6% annual rate from $863 million (2007) to $503 million (2011) and its cash got smaller at a 0.9% annual rate from $85 million (2007) to $82 million (2011).
Brinker has been shrinking but it seems to have reached a size at which it can out-earn its cost of capital while beating profit expectations. Its higher dividend yield and low valuation could make it a tasty addition to your portfolio.


Post a Comment

<< Home