Brinker International, Inc. (NYSE:EAT) revealed today that it has acquired Pepper Dining Holding Corp. for $106.5 million in a deal that is expected to add to be EPS accretive in fiscal year 2016. The acquisition brings into Brinker International, Inc.’s fold 103 Chili’s restaurants located mostly in the Northeast and Southeast. Today, Brinker International, Inc. jumped 2.1% to $58.73. Year-to-date, the stock has declined a marginal 0.63% while the stock’s performance for the past 12 months yields an increase of 14.89%.
Though the acquisition by Brinker International, Inc. (NYSE:EAT) was funded through an existing credit facility, the casual dining restaurant chain operator says that the transaction is not anticipated to impact the firm’s stock buyback program as expenses for the acquired restaurants will be sourced from those restaurants’ revenues. The upbeat outlook of the company, however, appears to be opposite of the decrease in hedge fund activity among the hedge funds tracked by Insider Monkey.
Our research reveals that hedge fund stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. This is precisely why we follow hedge fund activity in companies like Brinker International, Inc. (NYSE:EAT). After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 145%, outperforming the S&P 500 ETF by more than 85 percentage points (see more details here).
Another set of activities we track is insider sentiment or whether the management of companies like Brinker International are selling or purchasing their company’s stock. This is to see whether a significant number of shares have been purchased or sold which can give a clue whether the management of a company is also betting on their company’s stock. In the case of Brinker International, there were no purchases of shares by insiders for the first half of 2015. Only marginal sales have also been made in this period.
Keeping this in mind, let’s look closer at how hedge funds have been trading Brinker International, Inc. (NYSE:EAT).
What does the smart money think about Brinker International, Inc. (NYSE:EAT)?
At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish in this stock, a decrease of 14% from the previous quarter. In terms of the total value of those holdings, they decreased to $282.78 million in the first quarter from $328.71 in the preceding quarter. This is a decline of 13.97% which is notable since the stock climbed in value by 4.89% in the first quarter.
According to our database, Jim Simons‘s Renaissance Technologies had the biggest position in Brinker International, Inc. (NYSE:EAT), worth close to $55.3 million in 899,000 shares, accounting for 0.1% of its total 13F portfolio. Coming in second is OZ Management, managed by Daniel S. Och, which held a $37.2 million call position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, David Harding’s Winton Capital Management and Cliff Asness’s AQR Capital Management.
Judging by the fact that Brinker International, Inc. (NYSE:EAT) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies that elected to cut their entire stakes at the end of the first quarter. Eric Bannasch’s Cadian Capital dropped the biggest position of all the hedgies tracked by Insider Monkey. The firm offloaded 300,350 shares valued at about $17.6 million. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stake made up of 221,845 shares or about $13 million worth. These moves are interesting, as total hedge fund interest fell by 5 funds at the end of the first quarter.
Based on the fact that smart money seem to be general moving away from Brinker International, Inc. (NYSE:EAT), we conclude that it would be wise not to bite into this stock.
Disclosure: None
