Restaurant Stock Staging 30% Rally Before November Earnings

Brinker is set to report its fiscal first-quarter earnings early next month

Digital Content Manager
Oct 27, 2022 at 11:50 AM
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Brinker International, Inc. (NYSE: EAT) will report its fiscal first-quarter earnings before the open on Wednesday, Nov. 2. The stock has been in rally mode ahead of the event, up 39.7% this month. Today, the stock is set to topple the 200-day moving average for the first time in over a year, though it's still sitting at an 11.2% year-to-date deficit. 

eat oct 27

With earnings just ahead, can EAT maintain its October rally? Looking back at its last eight reports, it's hard to say. After four of these reports, the equity was higher, though two of its last four post-earnings drops include a 12.2% haircut in May 2022 and an 11.7% pullback in January 2021. Regardless of direction, the stock averaged a 5.4% next-day swing over the past two years. This time around, options players are pricing in a 9% post-earnings move. 

Analysts are still hesitant . Of the 18 in coverage, 12 say "hold" or worse. Short sellers are also piling on. Short interest rose 12.9% in the last reporting period, making up 10.1% of the stock's available float, or nearly a week's worth of pent-up buying power. 

Meanwhile, Brinker International provides a generally low valuation at a forward price-earnings ratio of 12.48 and a price-sales ratio of 0.37. Additionally, the business is expected to grow revenues by 4.7% for fiscal 2023 and by 3.5% for fiscal 2024.

Moreover, estimates have the company’s earnings declining by 16.8% for fiscal 2023 but recovering in fiscal 2024 with 47.1% earnings growth, potentially setting up the stock for a strong recovery over the coming years. Nonetheless, Brinker International’s balance sheet remains a risk for long-term investors due to its low cash balance of $13.5 million and high debt balance of $2.27 billion.

 

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