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What higher oil means for Red Lobster

What higher oil means for Red Lobster

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What higher oil means for Red Lobster

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While everyone's focused on the effects of a bad winter on natural gas prices, oil is now above $100 per barrel and that may be taking a bite out of casual dining restaurants.

In just the past month, oil prices climbed 9%, closing Thursday at $100.35 per barrel. That could be bad news for one stock.

Darden Restaurants, the parent company of Red Lobster, The Olive Garden, and LongHorn Steakhouse, has been moving in the opposite direction of the price of crude oil fairly regularly over the past year.

(Read: Investor to Darden: Keep Red Lobster!)

According to CNBC contributor Gina Sanchez, founder of Chantico Global, Darden pays the price whenever consumers feel a little pinched.

"Darden is in one of those segments in the market that always suffers if anything goes wrong," says Sanchez. "Casual dining gets crushed because people go down to cheap food [at that time] and they still want to spend on special occasions for expensive food. But, that casual dining sector always gets destroyed."

"I'm not as positive on this," says Sanchez. "I think that you need to see some real changes at Darden before I get really optimistic on the fundamentals side."

Yet, CNBC contributor Andrew Busch, editor and publisher of The Busch Update, sees a technical possibility ahead for the Darden's stock if certain indicators continue the way they have been doing so.

Specifically, Busch notes Darden's 10-day moving average is below its 30-day moving average. In a classic technical trading strategy using moving average crossovers, that would normally be a sell signal. However, Busch is encouraged by the fact that the two moving averages are under $2 apart.

"I would be looking to buy this thing if that gap starts to narrow a little bit more," says Busch.

(See: CNBC's Restaurants coverage)

But, if one follows Sanchez's fundamental take, Darden doesn't just have to worry about oil prices, it also has to worry about competition.

"They're competing against brands like Panera and Chipotle and basically they're eating [Darden's] lunch," says Sanchez. "I think that they have to rethink their brand and their strategy."

To see the rest of the discussion on Darden with Sanchez on the fundamentals and Busch on the technicals, watch the video above.

 

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