Goldman Sachs is sticking with its buy rating for Brinker International , despite investors dumping the stock after its fiscal third-quarter earnings report on Tuesday. Brinker International, which owns chains such as Chili’s and Maggiano’s Little Italy, reported fiscal third-quarter adjusted earnings of $2.66 per share on revenue of $1.43 billion. This exceeded the profit of $2.56 per share on revenue of $1.38 billion that analysts polled by FactSet had expected. The company also raised its full-year revenue guidance versus its previous outlook. However, investors still sent the stock down 15% on Tuesday, as some viewed the growth as unsustainable. Shares of Brinker International are now trading just 3% above where they began the year. EAT YTD mountain EAT YTD chart Despite this pullback, Goldman Sachs analyst Christine Cho maintained her buy rating on the stock. She also lifted her 12-month price target to $191 from $190, which implies the stock could rally 40% from its Tuesday close. “We continue to believe that the market is under-appreciating the enduring impact of the Chili’s turnaround and the resulting positive long-term set up,” Cho wrote, pointing to Chili’s efforts to grow its sales and traffic. Cho noted that Chili’s has managed to significantly outpace the industry, without adding any new food or value news during the past quarter. “The Chili’s brand will face increasingly more difficult SSSG [same-store sales growth] laps over the next few quarters, but we believe the multi-year turnaround efforts are continuing to bear fruit, and see the ongoing efforts toward viral campaigns, menu innovation, and investments in the restaurants providing continued support to comps,” she said. Meanwhile, Cho also seems confident that Brinker can replicate the Chili’s turnaround with its Maggiano’s brand. As part of its strategy to elevate its menu, Maggiano’s has introduced upgraded recipes and also removed deep discounts that are no longer consistent with its brand. “The Maggiano’s turnaround is still in the early innings, but we feel that efforts to simplify and improve the menu while also eliminating discounting are steps in the right direction,” Cho wrote. “As EAT continues to refresh the Maggiano’s brand, we expect further menu simplification, improved service levels, and a refreshed atmosphere across restaurants.”
