Brinker stock downgraded as valuation now ‘fully stretched’

Investing.com -- JPMorgan (NYSE:JPM) cut its rating on Brinker International (NYSE:EAT) shares to Neutral from Overweight. The firm says it sees the stock as “fully valued” following a recent rally.

The restaurant chain operator posted a 14.1% comparable sales growth in the first quarter, including a 6.5% increase in customer traffic. These results continued the positive trend from the fourth quarter of 2024, which posted a 14.8% comparable sales growth.

Brinker's recent success has been attributed to the "3 for me" promotion and its subsequent pivot to the "Big Smasher" combo, priced at $10.99.

Since Kevin Hochman took over as CEO on June 6, 2022, when the stock price was at $30, Brinker has seen a remarkable turnaround with the stock price reaching $104.

Hochman's leadership focused on Brinker's core offerings, which now include the "Triple Dipper," contributing to 11% of sales. However, JPMorgan forecasts a deceleration in comparable sales growth to 5% in the fourth quarter of 2025, with a normalization to 2-2.5% over the following years.

The Wall Street firm’s fiscal 2025 estimates for Brinker are above the company's guidance, with projected revenues of $4.84 billion and earnings per share (EPS) of $6.00. The firm also anticipates continued EPS growth in fiscal 2026 and 2027.

While business momentum appears strong, JPMorgan believes Brinker's stock valuation is “fully stretched,” setting a price target of $100.

Separately, analysts at BMO Capital Markets also downgraded EAT shares to Market Perform, saying they now “better reflect the strength of the Chili's turnaround.”

“Shares have appreciated 200%+ over last 12 months, well ahead of our casual dining coverage and more 5x+ the increase in S&P 500,” BMO analyst Andrew Strelzik noted.

“While we materially raise estimates and increase our target to $105, we now assign a 9.5x EV/EBITDA multiple on our out-year (FY26) EBITDA to account for potential additional earnings upside and are hesitant to push our target multiple further,” he added.