On an otherwise down day for the market, Darden Restaurants Inc. (DRI) rose after the restaurant chain operator posted fourth-quarter earnings. 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.
On Tuesday morning, DRI made headlines with its fourth-quarter report. Compared with the year ago quarter, total sales jumped 8.1% to $1.93 billion. This beat the $1.87 billion consensus estimate by 3.2%.
Breaking it down, six of Darden’s restaurant chains posted positive sales growth: Olive Garden (4.4%), LongHorn Steakhouse (3.5%), Eddie V’s (3.3%), Bahama Breeze (1.4%), The Capital Grille (0.5%) and Yard House (0.1%). Seasons 52 reported a 1.3% year-on-year decline in sales.
Meanwhile, adjusted earnings increased 7.3% to $1.18 per share. Analysts were expecting $1.15 EPS so Darden Restaurants posted a 2.6% earnings surprise. Darden Restaurants also increased the quarterly dividend by 12.5% to $0.63 per share. Shareholders of record on July 10 will receive the dividend on August. This, plus its $500 million share repurchase program, shows Darden’s commitment to its shareholders.
Looking ahead to FY 2018, Darden Restaurants is targeting between 11.5% and 13.0% total sales growth, and between $4.38 and $4.50 EPS. This is in line with the Street view, which calls for 12.8% sales growth and $4.43 EPS.
Between its solid fundamentals and generous dividend, DRI earns a B-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 at current prices.