KeyBanc cuts Brinker stock rating post 200% 9-month surge

On Friday, KeyBanc Capital Markets revised its rating on Brinker International (NYSE:EAT), the parent company of restaurant chains such as Chili's and Maggiano's Little Italy, from "Overweight" to "Sector Weight." This change comes after a significant increase in the company's stock value, which saw a gain of over 200% in the past nine months, outperforming the S&P 500's 19% rise during the same period.

The rationale behind the downgrade is attributed to the current valuation of Brinker's shares. They are trading at nearly 23 times KeyBanc's estimated EPS for fiscal year 2025, which is above consensus. InvestingPro analysis indicates the stock is currently trading above its Fair Value, with a P/E ratio of 36.6x and an exceptionally high Price/Book ratio of 540.55x.The analysts at KeyBanc suggested that it might be wise for investors to secure some profits at this stage. Their recommendation is based on the current stock valuation, which they believe is quite high when compared to Brinker's industry peers. They are adopting a cautious stance until they can ascertain the potential for significant earnings growth beyond their revised estimates or until the stock's valuation aligns more closely with that of its peer group. For investors seeking deeper insights, InvestingPro offers 14 additional valuable tips and a comprehensive Pro Research Report on Brinker International, providing essential context for more informed investment decisions.

The rationale behind the downgrade is attributed to the current valuation of Brinker's shares. They are trading at nearly 23 times KeyBanc's estimated EPS for fiscal year 2025, which is above consensus. According to the analysts, this valuation leaves little room for investment error and exceeds their initial optimistic case scenario for the stock.

The analysts at KeyBanc suggested that it might be wise for investors to secure some profits at this stage. Their recommendation is based on the current stock valuation, which they believe is quite high when compared to Brinker's industry peers. They are adopting a cautious stance until they can ascertain the potential for significant earnings growth beyond their revised estimates or until the stock's valuation aligns more closely with that of its peer group.

In other recent news, Brinker International has seen a series of upgrades and price target adjustments from several financial firms, following robust earnings and revenue results. Morgan Stanley (NYSE:MS) upgraded the company's stock from Underweight to Equalweight and increased the price target to $115. Goldman Sachs initiated coverage on Brinker with a Buy rating and a price target of $150.00, recognizing Chili's, which accounts for nearly 90% of the company's annual revenue, as a dominant revenue stream.

Additionally, the company granted significant stock-based compensation awards to its top executives, including CEO and President Kevin Hochman, who received performance shares with a target value of $20 million. Piper Sandler raised its stock target for Brinker by over 55% after strong Q1 results, while Stifel increased its price target and maintained a buy rating, highlighting the company's sales momentum.

These are recent developments that reflect Brinker's confidence in its growth trajectory and its commitment to operational efficiency. The company's strong start to the fiscal year, marked by increased sales and profitability, has led to positive adjustments by financial analysts.

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