Is Brinker International Undervalued Compared to Its Peers?



Is Brinker International undervalued?

Given all the information in the previous parts of this series, investors should now know if Brinker International (EAT) is undervalued, overvalued, or fairly valued compared to its peers.

In this part of the series, we’ll take a close look at Brinker International’s relative valuation compared to Darden Restaurants (DRI), DineEquity (DIN), Bloomin’ Brands (BLMN), Texas Roadhouse (TXRH), and The Cheesecake Factory (CAKE). Some of these restaurants are included in the Consumer Discretionary Select Sector SPDR (XLY), which holds about 4% of McDonald’s (MCD).


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PE and PEG ratio

The PE (price-to-earnings) ratio is calculated using the company’s share price over earnings per share (or EPS). Brinker International’s (EAT) PE was 18.5x. This is below its peers’ average of 21.6x. The lower the PE ratio, the more undervalued the company is.

With this information, we can say that Brinker International (EAT) is undervalued compared to its peers, except DineEquity (DIN). But keep in mind that we’re using only one measure to determine the company’s valuation, which is not enough.

The PEG (price-to-earnings growth) for Brinker is 1.3x, which is below its peers’ average of 1.6x. PEG, calculated as PE ratio over annual EPS growth, further refines the PE ratio and helps determine a company’s valuation.

EV-EBIDA ratio

EV (enterprise value)-to-EBITDA ratio for Brinker is 9.4x, which is also below its peers’ average of 10x. The EV-EBITDA ratio takes into account the enterprise value, which includes debt and determines how many times it’s trading EBITDA. The lower the value, the more undervalued the company is.

Looking at these three valuation ratios, Brinker International (EAT) appears to be undervalued, as you can see in the above chart. So how has Binker International’s (EAT) stock performed over the years? Let’s take a detailed look at that next.


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