On Tuesday, shares of Chipotle Mexican Grill (CMG) plunged after the restaurant revealed that it isn’t sure it’ll meet this year’s sales targets. The already beaten-down stock ended up losing nearly a tenth of its value that day. I noted in Tuesday’s blog that a little homework can go a long way towards avoiding fundamentally weak stocks like CMG.
Today, I’ll explain the other reason that I constantly screen my holdings in Portfolio Grader; it’s how I zero in on stocks with strong growth potential. Case in point is my top restaurant stock, which I consider to be a tastier alternative to CMG…
Many have heard of American restaurant chains Olive Garden, Bahama Breeze, or Longhorn Steakhouse, but few know that they are all owned and operated by Darden Restaurants Inc. (DRI). Darden Restaurants owns and operates more than 1,500 full-service restaurants across the U.S. and Canada. In addition to the three restaurant chains mentioned above, Darden also owns Seasons 52, The Capital Grille, Eddie V’s and Yard House.
Darden Restaurants delivers a staggering 320 million meals each and every year. This translates into serious sales and earnings. In the most recent quarter, total sales rose 1.6 and net earnings jumped 29% to $0.88 per share. Analysts were expecting $0.83 EPS, so Darden Restaurants posted a solid earnings surprise.
Now is a great time to add DRI to your plate. The restaurant operator is scheduled to report its fiscal second-quarter results before the market opens on Tuesday, December 20. As it stands, analysts are calling for 18.5% earnings growth and 2.5% sales growth, which is very respectable for the restaurant industry. Then again, Darden Restaurants is known for beating analysts’ expectations, so it’ll likely do even better.
In addition to its strong sales and earnings prospects, DRI offers a 3.1% annual dividend yield. The company is currently growing its dividend at a 12% annual rate, so there’s plenty to attract yield seekers.
For these reasons and more, DRI earns an A-rating in Portfolio Grader, with a B Fundamental Grade and an A Quantitative Grade. The stock is still trading at a reasonable valuation, so I recommend buying DRI before its December 20 report.