January 09, 2013 at 09:45 AM EST
Brinker International Upgraded to “Overweight” at Morgan Stanley (EAT)

On Wednesday analysts at Morgan Stanley upgraded restaurant operator Brinker International, Inc. (EAT) to “Overweight” due to positive remodels and menu changes, margin potentials, and cash flow expectations.

The analysts upgraded EAT from “Equal-Weight” to “Overweight” with a price target of $38. This valuation suggests a +15% upside to Tuesday’s closing price of $33.06.

A Morgan Stanley analyst commented, “The case for EAT now: 1) top line drivers, including new food ‘platforms’ (e.g. pizza, etc), remodels and recent menu revamps. Our proprietary work suggests that recent menu work has improved value and variety scores to well above industry averages, 2) margin story just at halfway mark to 400 bp, but could exceed if volumes continue to grow, 3) cash flow improves through 15 due to declining capex budgets; all FCF goes back to shareholders in buybacks and divs. Under appreciated ability to use B/S to augment buybacks; we est. an additional ~>$300 M in capacity, enough to buy back ~10% of shares.”

Brinker shares were flat during premarket trading on Wednesday. The stock is up +24.61% over the past year.

The Bottom Line
Shares of Brinker International (EAT) have a 2.42% dividend yield, based on last night’s closing stock price of $33.06. The stock has technical support in the $30 price area. If the shares can firm up, we see overhead resistance around the all-time high level of $36 per share.

Brinker International, Inc. (EAT) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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