Shares of Brinker International, Inc. ( EAT - Analyst Report ) have been steadily moving higher since mid-2010, driven by seven consecutive quarters of earnings surprises. Based on strong fiscal third-quarter results reported on April 23, management expects a two-fold EPS increase by 2015.

Earnings are presently expected to grow 27.5% and 17.0% for fiscal 2012 and fiscal 2013, respectively. With a dividend yield of 2.1% and a Zacks #1 Rank (Strong Buy), this casual dining restaurant company makes a good investment proposition for growth and income-seeking investors.

Strong Third Quarter

Brinker Int’l reported solid fiscal 2012 third quarter results with a 3.5% year-over-year growth in revenues to $742.0 million, including a one-time $5.2 million gift card breakage adjustment (excluding which, revenues increased 4.2%). The year-over-year increase in revenues was primarily driven by a comparable restaurant sales rise of 4.6% and a customer traffic increase of 1.8% in the Chili's Grill & Bar restaurants, and corresponding gains of 3.9% and 1.5%, respectively, for Maggiano’s Little Italy restaurants.

Recurring earnings came in at 60 cents, surpassing the Zacks Consensus Estimate by 7.1% and improving year over year by 27.7%. Restaurant operating margin improved 40 basis points during the quarter to 18.7%, as restaurant expense dipped 70 basis points lower than the year-ago period to $164 million. It was driven largely by leverage on higher revenues, lower repair and maintenance expense, reduced credit card fees and utility costs.

Outlook Reiterated

With solid quarterly results, Brinker reiterated its fiscal 2012 EPS in the range of $1.80-$1.95.

Analysts have revised their earnings estimate higher for both fiscal 2012 and 2013, driving the stock to attain a Zacks #1 Rank (Strong Buy). The Zacks Consensus Estimate for fiscal 2012 is currently at the higher end of the company guidance at $1.94, implying year-over-year growth of 27.5%. For fiscal 2013, the Zacks Consensus Estimate of $2.27 represents growth of 17.0%.

Dividend Payout

Brinker paid a dividend of 16 cents per share in the third quarter of fiscal 2012, which marked a 14.3% increase over the year-ago quarter. Since 2006, the company has raised its dividend 4 times from a meager 6.7 cents and was even paying it during the recession. The current dividend yield looks relatively decent at 2.1%.

Reasonable Valuation

Brinker’s valuation looks reasonable on a price-to-earnings (P/E) and price-to-book (P/B) basis. Shares of Brinker are currently trading at a forward P/E of 16.04x versus the peer group average of 12.87x. On a P/B basis, Brinker is currently trading at 7.32x versus 8.27x for the peer group. However, shares look pretty impressive with a ROE of 40.2%, compared with the peer group average of 29.3%. Its PEG ratio is 1.12 based on a 5-year EPS growth rate of 14.4%.

Since December 12, 2011, Brinker shares have consistently fared relatively better than the simple moving average for 200 days or SMA (200) and S&P 500. The year-to-date return for the stock is noteworthy at 16.17% compared to an S&P 500 tally of 5.40%.

The Bottom Line

With a steady increase in comparable restaurant sales and customer traffic, rising earnings estimates, robust growth projections, and a healthy dividend yield, Brinker offers an enticing upside potential going forward. In addition, a continued focus on international expansion to offset competition in the over-supplied domestic market and prudent cost-control initiatives augurs well for its long-term growth.

Based in Dallas, Texas, Brinker owns, operates, develops and franchises various restaurant brands under the Chili’s Grill & Bar and Maggiano’s Little Italy brand names. Presently, Brinker owns, operates, or franchises around 1,574 Chili's Grill & Bar restaurants and around 45 Maggiano's Little Italy restaurants. Brinker also holds a minority investment in Romano's Macaroni Grill. The company currently has a market cap of $2.39 billion.