Brinker International, Inc. (EAT): Still A Great Investment

Page 1 of 2

One classic investing mistake is assuming a company has grown as much as it can. I know many investors have made this mistake with companies like McDonald’s Corporation (NYSE:MCD) over the years. According to Peter Lynch, most restaurants go through multiple phases of growth in their lifetime. They start out, perfect their formula, expand, and then at some point, they reach saturation and have to find a way to grow organically. He liked following restaurants because the business is easy to understand and easy to track. Lynch said he couldn’t believe he missed Brinker International, Inc. (NYSE:EAT) since his girls wore their Chili’s sweatshirts to bed. I’m suggesting that roughly 30 years later, this company could still be a great investment.

Are They Done?
Brinker has been expanding domestically for years. The company’s Chili’s chain is found in most major towns. With over 1,500 restaurants, Brinker may or may not be close to saturation in the United States. I’ve heard the argument on more than one occasion that fast growth companies like Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera Bread Co (NASDAQ:PNRA) should be able to expand for years, and they have over 1,300 and 1,600 restaurants respectively. Though their layouts are different, the standard Chili’s restaurant isn’t all that different in size from a normal sized Panera or Chipotle. The biggest difference is Chili’s is a sit down traditional restaurant and Chipotle and Panera operate more of a ordering line. The fact that the United States supports about 14,000 McDonalds stores, argues that each of these concepts could continue to expand for a while.

Where there is very little argument is that Chili’s and their competition have vast opportunities overseas. Going back to Peter Lynch for a moment, he used to make the argument like this, if the United States can support a certain number of restaurants with about 315 million people, doesn’t it make sense that China alone with over 1 billion people could support at least as many restaurants? At this point India has over 1 billion people as well, and countries such as Indonesia and Brazil have 246 million and almost 200 million people respectively. The bottom line is, on a worldwide basis, Chili’s and their competition have many decades of expansion left.

These Numbers Are Anything But Boring
I’ll admit one of my primary mistakes in not following Brinker was, I assumed their earnings growth was slow. What might surprise investors is, Brinker is expected to report EPS growth that is only somewhat slower than Chipotle or Panera. In fact, in Brinker’s current quarter, while their sales only increased by 1.1%, their diluted EPS jumped by 13.6%. What’s even more impressive is analysts’ projections for EPS growth in the next few years.

The average analyst is calling for 13.84% EPS growth from Brinker over the next few years. This projected growth easily bests McDonald’s expected growth of 8.7%. While Chipotle’s EPS growth of 20.21% or Panera’s expected growth of 19.25% would seem to blow away Brinker, keep in mind neither of these companies pays a dividend. In addition, while McDonald’s sells for a PEG of 1.87, Chipotle’s PEG is 1.5, and Panera’s PEG is 1.2, Brinker’s PEG ratio is just 1.02. As you can see, investors are getting the cheapest relative valuation of the four companies.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!