Darden Restaurants Inc. (DRI), owner of restaurant chains such as the Olive Garden, Red Lobster and the Capital Grill, will be announcing its earnings on June 20th. As a general rule of thumb, when I review any stock I look at both Qualitative factors and what drives or affects the business. Take for example, Starbucks (SBUX). If there were a hypothetical scenario where the cost of coffee beans were to skyrocket, say a massive storm destroyed a large amount of crops causing supply to drop and demand (thank you Adam Smith) to increase, in turn increasing price. For those types of scenarios, there can be both tangible and intangible factors to consider. With Darden restaurants, there is much less guess work. The company has done very well at both integrating technology into their locations (online and table ordering for just a couple examples) and using their system to help enhance smaller companies they acquire. President and CEO, Gene Lee said in a conference regarding one of their strategic goals, “…we were going to build a platform that we would be able to plug brands into and give our brands a competitive advantage.”
Darden has been able to outpace the restaurant industry considerably. First off, the company in its most recent quarter is showing almost no debt and is showing an ROE if 30 percent! A simple way of thinking of this is that, for every $1 worth of shareholders’ equity, it produced $0.30 in profit. When comparing that to the industry which is forecasting only 13 percent, its pretty impressive. In both a higher PEG ratio (PEG standing for PE ratio/ Growth rate) and a low Beta (is a measure of volatility), DRI is flashing all the signs of a strong company. In addition, many analysts are reaffirming their buy status for Darden’s stock. Last week in an article from Zacks Equity Research, they suggest that.”…investors should actually focus on the projected growth. The company’s EPS is expected to grow 11.4% this year, crushing the industry average, which calls for EPS growth of 5% ” (yahoo.com). After considering various analysts recommendations and my own in depth research, Darden is likely to serve up a hot and tasty earnings beat come next week! (See what I did there, eh?)
Typical disclosure, I do not currently own any Darden stock and this buy recommendation is my own opinion based off my own research.
http://pages.stern.nyu.edu/ (Great source for industry valuations)
https://finance.yahoo.com/news/3-reasons-growth-investors-love-124512206.html
https://www.nrn.com/casual-dining/what-might-darden-buy-next
https://finance.yahoo.com/news/why-darden-restaurants-inc-nyse-185740154.html
Dry Powder 