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Option Idea of the Week: Brinker International

Despite its quest for new highs, EAT remains starved for Wall Street's affection

by 9/21/2012 11:59 AM
Stocks quoted in this article:

Restaurateur Brinker International, Inc. (NYSE:EAT - 35.61) has emerged as a technical standout in 2012, advancing roughly 32%. Nevertheless, the security remains plagued by pessimism on Wall Street -- which, to contrarians, points to sideline cash that could fuel additional upside.

Technically speaking, EAT has tacked on more than 66% over the past year, ushered higher atop its 10-week and 20-week moving averages. In fact, the security just notched an all-time high of $36.24 on Sept. 10, but has since taken a bit of a breather -- meaning now could be an opportune time to jump in on the stock's longer-term uptrend.

Weekly Chart of EAT since October 2011 With 10-Week and 20-Week Moving Averages

However, as alluded to earlier, Wall Street remains unconvinced when it comes to EAT. Despite outperforming the broader S&P 500 Index (SPX) by five percentage points during the past 60 sessions, EAT remains underloved among the analyst crowd.

Currently, 10 out of 17 brokerage firms maintain "hold" or worse opinions, leaving the door wide open for potential upgrades to lure additional buyers. In the same vein, the average 12-month price target of $34.93 represents a discount to EAT's closing price of $35.14 on Thursday. A wave of price-target boosts could also add fuel to EAT's fire.

Elsewhere, analysts aren't the only group wary of outperforming EAT. Short interest edged 5.7% higher during the most recent reporting period, and now represents 7.3% of the stock's total available float. At the equity's average pace of trading, it would take about seven sessions to buy back all of these bearish bets. As EAT continues higher, a short-squeeze situation could amplify the stock's uptrend.

Investors expecting EAT to assail new heights should consider buying the stock's in-the-money January 2013 30-strike call, which was last offered for $6.70.


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