Keith sold EAT in the Hedgeye Virtual Portfolio this morning as the setup in his quantitative model was flashing oversold from an immediate term perspective.
From our fundamental view, the stock looks good on the long side.
From a fundamental perspective, as we wrote in our note titled “EAT – CAN THEY EXECUTE?” on 10/27, we believe that the company is operating well and will continue to improve going forward. At Chili’s, the remodeling program, kitchen retrofits and other initiatives are going to boost sales and customer satisfaction. As our note following earnings (10/27) highlighted, we believe that the skepticism among the sell-side community is misguided and would not interpret this negative sentiment as being anything other than a positive for a buyer of the stock. Having met with the company in November (note titled “EAT MEETING”, dated 11/15), we are further convinced that Brinker is out-innovating the competition and, as a result, will outperform over the longer term TAIL duration.
Malcolm Knapp’s Knapp Track Casual Dining Index registered a sequential deterioration in November but, and the price action has supported our view, we believe that EAT is taking share.
Below is a chart illustrating Keith’s fundamental view of EAT. The stock is overbought from an immediate-term perspective but the trend remains positive.