Should Value Investors Pick Brinker International (EAT) Stock?
Value investing is easily one of the most popular
ways to find great stocks in any market environment. After all, who
wouldn’t want to find stocks that are either flying under the radar
and are compelling buys, or offer up tantalizing discounts when
compared to fair value?
One way to find these companies is by looking at several key
metrics and financial ratios, many of which are crucial in the
value stock selection process. Let’s put Brinker
International, Inc. EAT stock into this equation and find
out if it is a good choice for value-oriented investors right now,
or if investors subscribing to this methodology should look
elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to
Earnings Ratio, or PE for short. This shows us how much investors
are willing to pay for each dollar of earnings in a given stock,
and is easily one of the most popular financial ratios in the
world. The best use of the PE ratio is to compare the stock’s
current PE ratio with: a) where this ratio has been in the past; b)
how it compares to the average for the industry/sector; and c) how
it compares to the market as a whole.
On this front, Brinker International has a trailing twelve months
PE ratio of 12.5, as you can see in the chart below:
This level actually compares pretty favorably with the market at
large, as the PE for the S&P 500 compares in at about 17.5. If
we focus on the stock’s long-term PE trend, the current level puts
Brinker International’s current PE ratio slightly below its
midpoint (which is 14.2) over the past five years.
Further, the stock’s PE also compares favorably with the industry’s
trailing twelve months PE ratio, which stands at 26.5. At the very
least, this indicates that the stock is relatively undervalued
right now, compared to its peers.
We should also point out that Brinker International has a forward
PE ratio (price relative to this year’s earnings) of just 11.8, so
it is fair to say that a slightly more value-oriented path may be
ahead for Brinker International’s stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach
compares a given stock’s price to its total sales, where a lower
reading is generally considered better. Some people like this
metric more than other value-focused ones because it looks at
sales, something that is far harder to manipulate with accounting
tricks than earnings.
Right now, Brinker International has a P/S ratio of about 0.6. This
is significantly lower than the S&P 500 average, which comes in
at 3.4 right now. Also, as we can see in the chart below, this is
somewhat below the highs for this stock in particular over the past
few years.
If anything, this suggests some level of undervalued trading—at
least compared to historical norms.
Broad Value Outlook
In aggregate, Brinker International currently has a Value Style
Score of A, putting it into the top 20% of all stocks we cover from
this look. This makes EAT a solid choice for value investors, and
some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Brinker International is just 1.3, a
level that is slightly lower than the industry average of 1.9. The
PEG ratio is a modified PE ratio that takes into account the
stock’s earnings growth rate. Additionally, its P/CF ratio (another
great indicator of value) comes in at 6.4, which is somewhat better
than the industry average of 12.4. Clearly, EAT is a solid choice
on the value front from multiple angles.
What About the Stock Overall?
Though Brinker International might be a good choice for value
investors, there are plenty of other factors to consider before
investing in this name. In particular, it is worth noting that the
company has a Growth grade of B and a Momentum score of D. This
gives EAT a VGM score—or its overarching fundamental grade—of A.
(You can read more about the Zacks Style Scores here
>>)
Meanwhile, the company’s recent earnings
estimates have been encouraging. The current quarter has seen five
estimates go higher in the past sixty days, compared to none lower,
while the full year estimate has seen eight upward and no downward
revisions in the same time period.
This has had a noticeable impact on the consensus estimate, as the
current quarter consensus estimate has risen 4.3% in the past two
months, while the full year estimate has nudged up 2.4%. You can
see the consensus estimate trend and recent price action for the
stock in the chart below:
Brinker International, Inc. Price and Consensus
Brinker International, Inc. Price and Consensus | Brinker International, Inc. Quote
This favorable trend is why the stock has just a
Zacks Rank #2 (Buy) and why we are looking for better performance
from the company in the near term.
Bottom Line
Brinker International is an inspired choice for value investors, as
it is hard to beat its incredible lineup of statistics on this
front. Boasting a good industry rank (top 28% out of more than 250
industries) and a strong Zacks Rank, the company deserves attention
right now. In fact, over the past one year, the sector has clearly
outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the
company’s prospects, as fundamentals indicate that this stock could
be a compelling pick.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free
report
Brinker International, Inc.
(EAT) : Free Stock Analysis Report
To read this article on
Zacks.com click here.
Zacks Investment Research