Shares of Darden Restaurants Inc. (DRI) rose to an all-time high after the restaurant chain operator made a few big announcements last night. Is DRI a good buy right now? Let’s take a look.
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. 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.
Last night, Darden made headlines with its announcement that it is acquiring Cheddar’s Scratch Kitchen for $780 million in cash. Based in Arlington, Texas, Cheddar’s has 165 restaurants across 28 states. It averages $4.4 million in annual restaurant volumes, and Darden sees significant growth opportunities in new and existing markets.
Darden also released strong operating results for the fiscal third quarter. Compared with the year ago, total sales rose 1.7% to $1.88 billion. This topped the $1.85 billion consensus sales estimate by 1.6%. Meanwhile, adjusted earnings jumped 57% to $1.32 per share. Analysts were looking for $1.15 EPS, so Darden posted a 14.8% earnings surprise.
Darden also increased its outlook for this fiscal year. The company is now targeting earnings per share between $3.95 and $4.00, which is above the Street view of $3.94 EPS. Darden also expects same-restaurant sales to grow 1.5% compared with last year.
As a heads up, DRI has an ex-dividend date coming up on April 6. Shareholders of record on April 10 will receive $0.56 per share on May 1. At current prices, DRI has a 2.7% annual dividend yield.
Between its solid fundamentals and generous dividend, 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.