A few weeks ago, I suggested Darden Restaurants Inc. (DRI) as a tastier alternative to Chipotle Mexican Grill (CMG), at least as far as their underlying shares are concerned. Today, I’m happy to report that DRI did not disappoint with its fiscal second-quarter report.
Today, the operator of Olive Garden, Bahama Breeze and Longhorn Steakhouse posted quarterly results that were in line with analysts’ expectations. Compared with the year ago quarter, total sales climbed 2.1% to $1.64 billion. Sales at restaurants open a year of longer rose 1.7%. Breaking it down, same-restaurant sales increased 2.6% at Olive Garden and 0.1% at Long Horn Steakhouse.
Meanwhile, Darden’s net earnings jumped 18.5% to $0.64 per share. This was in line with the consensus estimate. Looking ahead to FY 2017, the company is targeting net earnings between $3.87 and $3.97 per share and same-restaurant sales of 1.0% to 2.0%. This is in line with the Street view of $3.93 EPS.
DRI shares rose after this solid earnings report, but I see plenty of upside potential for the restaurant operator. Looking ahead to the current fiscal year, analysts are expecting 11.3% annual earnings growth and 2.3% sales growth. This is very respectable for the restaurant industry. Then again, Darden Restaurants is known for beating analysts’ expectations, so it’ll likely do even better.
For these reasons and more, DRI earns a B-rating in Portfolio Grader, with a B Fundamental Grade and a B Quantitative Grade. The stock is still trading at a reasonable valuation, so I recommend buying DRI at current prices.