Brinker International (EAT): A High P/E Stock With High Growth Legs

The casual dining sector has long been a bellwether for consumer confidence, and Brinker International (EAT)—the parent company of Chili's Grill & Bar and Maggiano's Little Italy—has emerged as a standout performer in 2025. While its trailing P/E ratio of 23.15 may seem elevated at first glance, a deeper dive into its valuation metrics, growth trajectory, and risk profile reveals a compelling case for why this premium is justified. Let's unpack why EAT could be a buy despite its rich multiple.

The P/E Puzzle: Is 23.15 Too High?

To assess whether Brinker's P/E is overvalued, we must first contextualize it against its growth prospects. The company's projected 113.7% year-over-year EPS growth for fiscal 2025—driven by a 31.6% surge in comparable restaurant sales at Chili's—places its valuation in perspective. At its current price of $173.45, EAT trades at a P/E ratio that's meaningfully higher than competitors like Dine Brands Global (DIN) and Bloomin' Brands (BLMN), which trade at P/Es of 15.2 and 12.8, respectively.

But EAT isn't just keeping pace with peers—it's outpacing them. Its PEG ratio of 0.46 (calculated using a 23.55 trailing P/E and robust growth expectations) signals that the stock is undervalued relative to its growth rate. A PEG below 1 suggests investors aren't overpaying for future earnings.

Why the Growth Is Sustainable

Brinker's earnings momentum isn't a flash in the pan. Three key factors underpin its sustainability:

1. Chili's Dominance: The brand's 31.6% comparable sales growth in Q3 2025—a result of traffic boosts (+21%), menu innovation (e.g., the “Big Smasher” burger), and targeted marketing—has been a growth engine. This isn't just a single-quarter blip; Q1 2025 already saw a 14.1% sales jump at Chili's.
2. Margin Expansion: Restaurant operating margins rose to 18.9% in Q3 from 14.2% a year ago, thanks to better cost management and pricing power.
3. Debt Discipline: Brinker reduced funded debt by $125 million, lowering its debt-to-equity ratio to 0.10—a healthy level that supports reinvestment without overleveraging.

Analyst and Market Validation

The Street is onboard. The Zacks Rank #2 (Buy) and an A Growth Style Score reflect consensus bullishness. Analysts have raised their fiscal 2025 EPS estimates to $8.76, and price targets hit as high as $208 (Goldman Sachs), nearly 20% above current levels. Even the conservative consensus target of $144.36 implies significant upside.

Addressing the Risks

No investment is risk-free. Brinker's beta of 1.72 highlights its sensitivity to market swings, and a 11.7% short interest suggests some skepticism. Key risks include:
- Economic Downturns: A recession could crimp discretionary spending.
- Supply Chain Volatility: Commodity costs (e.g., avocados) and labor shortages remain threats.
- Competitor Copycats: Competitors might replicate Chili's value-driven strategies.

However, Brinker's strong cash flow ($391 million in 2024) and its focus on operational efficiency (e.g., tech-driven staffing) mitigate these concerns. Management has also shown agility, as seen in its rapid response to post-pandemic consumer preferences.

The Bottom Line: Buy EAT at Today's Levels

Brinker International's intrinsic value of $345.43 per share—nearly double its current price—underscores the gap between its valuation and its growth potential. While the P/E of 23.15 may seem high in isolation, the PEG ratio of 0.46, coupled with 113.7% EPS growth, makes it a rational buy.

Investors seeking exposure to a casual dining leader with a proven track record of execution and a runway for margin expansion should consider EAT. Even with the risks, the growth story and valuation metrics suggest this stock could deliver outsized returns.

Recommendation: Buy EAT, with a focus on long-term growth. Monitor earnings reports and margin trends for confirmation of sustainability.

Data as of June 10, 2025.