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On Tuesday, Citi revised its price target for Brinker International (NYSE: NYSE:EAT), the parent company of Chili's Grill & Bar, raising it to $83.00 from the previous $69.00, while retaining a Neutral rating on the stock. The adjustment follows a period of notable performance for the company, particularly for its Chili's brand, which experienced robust customer traffic and sales in the third quarter.
Chili's recent success has been attributed to several key factors, including new product launches such as the Smashburger, Triple Dipper, and Nashville hot mozzarella. The brand's increased media visibility and operational investments, such as the addition of bussers to improve service, have also contributed to its positive momentum.
These initiatives have positioned Chili's as a standout in its category, potentially leading to better than expected comparable sales and earnings per share for the first fiscal quarter.
The stock has seen an approximate 19% increase over the past month, reaching valuations that are near multi-year highs, both in absolute terms and relative to the market. This surge reflects investor recognition of Chili's comparative sales strength. Despite the positive trend, there is a growing debate among investors about the long-term sustainability of this growth in comparable sales and its impact on the company's valuation.
Citi's analyst notes that while the current success is evident, any deviation from expected financial results or future outlooks could result in a volatile response from the market. Investors are advised to remain cautious, as the heightened expectations embedded in the stock's valuation leave little room for error. The market will closely monitor Brinker International's performance to gauge whether the recent uptrend can be maintained in the face of these concerns.
In other recent news, Brinker International, known for its restaurant chains Chili's and Maggiano's, reported strong fiscal fourth-quarter 2024 results. The company's earnings per share (EPS) of $1.61 fell short of the consensus estimate of $1.72, leading BMO Capital Markets to lower its price target on the company's stock from $85 to $80 while maintaining an Outperform rating. Despite the EPS miss, Brinker saw a 6.8% annual revenue increase and a 45% adjusted EPS growth, largely driven by Chili's strong sales and traffic growth.
For fiscal year 2025, Brinker has set a revenue target between $4.55 billion and $4.62 billion, and an adjusted diluted EPS between $4.35 and $4.75. The company's future strategies include a focus on growing traffic, with plans to invest $15-20 million in labor and continue marketing and innovation efforts. However, Maggiano's reported negative traffic despite positive comparable sales driven by price and mix.
Brinker also plans to open 10-12 new Chili's restaurants, potentially increasing to 15, and may accelerate Maggiano's development. These recent developments underline Brinker's commitment to driving traffic and delivering long-term profitable growth through strategic initiatives in marketing, menu innovation, and operational efficiency. According to BMO Capital, Brinker International continues to demonstrate strong top-line momentum and has the potential to exceed its earnings guidance.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Brinker International's (NYSE: EAT) current market position. The company's market capitalization stands at $3.69 billion, reflecting its recent stock performance. Brinker's P/E ratio of 23.56 and adjusted P/E ratio of 19.27 for the last twelve months as of Q4 2024 suggest that investors are willing to pay a premium for the company's earnings, aligning with the stock's recent surge.
InvestingPro Tips highlight that Brinker is trading near its 52-week high, with a strong return of 179.4% over the last year. This impressive performance is consistent with the 19% increase mentioned in the article and supports the notion of investor optimism surrounding the company's recent initiatives and sales growth.
However, it's worth noting that InvestingPro Tips also indicate that Brinker suffers from weak gross profit margins, which stood at 14.21% for the last twelve months as of Q4 2024. This could be a point of concern for investors considering the long-term sustainability of the company's growth.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for Brinker International, providing a deeper understanding of the company's financial health and market position.
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