Aging baby boomers who invested in fast-food stocks when they were young are celebrating their subsequent financial success at casual restaurant chains such as

P.F. Chang's China Bistro


and Chili's.

Meanwhile, with gas and beef prices climbing, investor appetites could be shrinking for old giants such as


(MCD) - Get Report



(WEN) - Get Report


"Casual dining has really been the best restaurant sector to be in for the last few years, and I expect it to continue to be the best sector for the next decade, because this is the way families of the baby boomers like to eat," said Longbow Research analyst Stephen Spence. "I favor it over any other restaurant sector based on demographics trends. Fast food was made popular by baby boomers when they were kids, but as they've matured, they're migrating to casual dining."

Spence's top pick in casual dining is

Brinker International

(EAT) - Get Report

, a stock that serves as a quasi-mutual fund for the industry, since the company operates a number of chains, such as Chili's, Macaroni Grill and On the Border.

To be sure, the stock hit a snag last August, when sales slowed unexpectedly on poorly marketed menu offerings. Management informed Wall Street that its annual earnings would fall short of expectations. The announcement led to a shake-up in management and a concerted effort to turn things around. Now, a number of analysts on Wall Street have concluded that the efforts are about to bear fruit.

"They're doing all the right things for a turnaround," said SunTrust Robinson Humphrey analyst Hil Davis, who finished serving a stint as Brinker's director of investor relations about two years ago. "The recent selloff in the shares should offer a window for buyers here." Davis does not own shares of Brinker, but his firm does have an investment-banking relationship with the company.

Shares of Brinker have dropped more than 6% since early March, when the company lowered earnings expectations for its third quarter to 57 or 58 cents a share, below analysts' estimates calling for 63 cents a share. The disappointment came from increased labor costs the company paid, associated with the rollout of its new "Build Your Own Big Mouth Burger" and "Savory Skillets" marketing campaigns at Chili's.

Chili's makes up 60% of the company's sales and 76% of its operating profit, so Brinker's success rests on the chain, whose average unit volume continues to outpace the volumes reported at such chains as




Ruby Tuesday



Its other businesses, such as Macaroni Grill, have struggled, but analysts are looking for Chili's to drive growth in the stock in the near future. Despite the unexpected costs of the company's recent product development efforts, analysts expect the costs to pay off. If Chili's can post a strong year, the other chains will have some breathing room, working against easier comparisons in 2006 to contribute sales strength.

"Some of the inconsistency that has weighed on Chili's will go away as it does a better job of coordinating the testing of products with its marketing," Spence said. "It's a new process they've developed with a lot more consumer participation in the testing. It's shown some success elsewhere, and I expect it to work for them."

Much is riding on Chili's performance this summer. Citigroup analyst Mark Kalinowski upgraded the stock on Wednesday on the basis of "proprietary channel checks" that showed customers were reacting positively to new Savory Skillets products rolled out in March, such as the "Soup-to-Nuts."

Kalinowski said in a research note the product "sold very well." Kalinowski does not own shares of Brinker, and his firm has no investment-banking relationship with the company.

The news marks a welcome change from late January, when Brinker revealed a loss in second-quarter earnings that was attributed to the sale of its Big Bowl restaurant chain and write-offs associated with its failed investment in Rockfish Seafood Grill. However, Wall Street was expecting the decline, and Morningstar analyst Lauren DeSanto said in a research note that the steps would help free up the company from past missteps.

DeSanto expects sales increases of about 7.7% over the next five years, down from about 14.7% over the past five years. But in the next decade, she says, Chili's could nearly double its store count.

"We wouldn't expect this growth to happen too quickly, since the Chili's chain is already 30 years old," DeSanto said. "But its growth, albeit slow, will be fundamental to Brinker's success, given that the chain contributes 60% of revenue and 76% of operating profits."

Using Morningstar's discounted cash-flow model, she gives Brinker a price target of $42. Currently, it trades at $36.60. The discount may not last long, as the doubts that arose during Chili's slowdown last year appear to be going away.

"Their performance at Chili's has been a lot better than I would have ever imagined," said Baldwin Anthony Securities analyst William Baldwin, who does not own shares of Brinker and whose firm has no investment-banking relationship with the company. "You've got to take your hat off to these guys."