Investor Confidence In Brinker International, Inc. (EAT) Is Souring

Is Brinker International, Inc. (NYSE:EAT) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy league graduates, expert network advisers, and supply chain tipsters working with or consulting for them. There is not a shortage of news stories covering failed hedge fund investments (for some reason, the media paid a ton of attention to Bill Ackman’s gigantic JC Penney and Valeant failures) and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

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Is Brinker International, Inc. (NYSE:EAT) a buy? Investors who are in the know are in a bearish mood. The number of long hedge fund bets were trimmed by four in recent months. Brinker International, Inc. (NYSE:EAT) was in 27 hedge funds’ portfolios at the end of September. There were 31 hedge funds in our database with Brinker International, Inc. (NYSE:EAT) holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Virtu Financial Inc (NASDAQ:VIRT), Piedmont Natural Gas Company, Inc. (NYSE:PNY), and Horizon Pharma Inc (NASDAQ:HZNP) to gather more data points.

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In the eyes of most investors, hedge funds are perceived as worthless, outdated financial vehicles of yesteryear. While there are over 8,000 funds trading at the moment, experts at Insider Monkey, a website specializing in hedge funds, hone in on the elite of this group, approximately 700 funds. It is estimated that this group of investors handle the lion’s share of all hedge funds’ total capital, and by keeping track of their finest investments, Insider Monkey has identified a few investment strategies that have historically outperformed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per annum for a decade in its backtests.

Now, let’s take a look at the key action encompassing Brinker International, Inc. (NYSE:EAT).

What does the smart money think about Brinker International, Inc. (NYSE:EAT)?

Heading into Q4, a total of 27 of the hedge funds tracked by Insider Monkey were long in this stock, a drop of 13% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the largest position in Brinker International, Inc. (NYSE:EAT). AQR Capital Management has a $58.2 million position in the stock, comprising 0.1% of its 13F portfolio. The second-most bullish hedge fund manager is Gotham Asset Management, led by Joel Greenblatt, holding a $35.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining hedgies with similar optimism include David Harding’s Winton Capital Management, Jim Simons’ Renaissance Technologies, and Israel Englander’s Millennium Management.

Due to the fact that Brinker International, Inc. (NYSE:EAT) has faced bearish sentiment from hedge fund managers, logic holds that there was a specific group of fund managers that elected to cut their full holdings by the end of the third quarter. Interestingly, Clint Carlson’s Carlson Capital dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $21.5 million in call options, while Mark Kingdon of Kingdon Capital was right behind this move, as the fund manager dropped about $11.5 million worth of shares. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by four funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Brinker International, Inc. (NYSE:EAT). These stocks are Virtu Financial Inc (NASDAQ:VIRT), Piedmont Natural Gas Company, Inc. (NYSE:PNY), Horizon Pharma Inc (NASDAQ:HZNP), and Tanger Factory Outlet Centers Inc. (NYSE:SKT). This group of stocks’ market values match Brinker International, Inc. (NYSE:EAT)’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIRT 12 73049 -6
PNY 10 34284 2
HZNP 44 1127993 1
SKT 10 198988 -5

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $359 million, far more than the $214 million in shares of Brinker owned by elite investors. Horizon Pharma Inc (NASDAQ:HZNP) is the most popular stock in this table. On the other hand Piedmont Natural Gas Company, Inc. (NYSE:PNY) is the least popular one with only ten bullish hedge fund positions. Brinker International, Inc. (NYSE:EAT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Horizon Pharma Inc (NASDAQ:HZNP) might be a better candidate to consider a long position in.