A 13G filed with the SEC has disclosed that Citadel Investment Group, which is managed by billionaire Ken Griffin, owns just over 4 million shares of Brinker International, Inc. (NYSE:EAT), the restaurant company which owns Chilis and Maggiano’s Little Italy. According to the filing, this gives Citadel ownership of 5.5% of the total shares outstanding. Our database of 13F filings shows that Citadel had sold shares during the third quarter and only owned about 80,000 shares at the end of September (find more of Griffin's stock picks), so the fund’s move into the stock has occurred fairly recently.
Brinker had barely managed to make our list of the ten most popular restaurant stocks among hedge funds for the third quarter of 2012 (see the full rankings); hedge funds tend to be preferring quick service restaurants such as McDonald’s Corporation (NYSE:MCD) or Starbucks Corporation (NASDAQ:SBUX). For example, billionaire Ken Fisher’s Fisher Asset Management owned 2.1 million shares of Brinker at the end of the quarter, but had much larger positions in other restaurant stocks (including McDonald’s). Check out Fisher's favorite stocks.
In its most recent quarter, ending in September (this was the first quarter of the company’s fiscal year ending June 2013) Brinker reported a 2% increase in revenue versus a year earlier. With restaurant expenses seeing very little growth, earnings were up 18%. While we doubt that Brinker will continue that growth rate, particularly as most of it came from better margins rather than expanding the business, the stock trades at only 16 times trailing earnings and so even moderate improvement in the bottom line would justify the current price. Sell-side analyst estimates have Brinker’s forward P/E, for the fiscal year ending in June 2014, at 12. We would probably need to see continued growth in revenue and earnings to convince us that the company will get there, but at this point we’d lean towards buying.