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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!