Darden (DRI) Upgraded to Strong Buy on Solid Q3 Earnings - Analyst Blog
On Mar 21, Zacks Investment Research upgraded Darden Restaurants, Inc. DRI to a Zacks Rank #1 (Strong Buy). The restaurateur has been witnessing rising earnings estimates ever since it reported strong fiscal third-quarter 2015 results on Mar 20. Following the earnings report, Darden’s shares rose nearly 3%.
Why the Upgrade?
It seems that Darden is slowly turning around after divesting the Red Lobster segment to Golden Gate Capital for $2.1 billion in cash in Jul 2014. Since the completion of the sale, Darden's shares soared nearly 52%.
Darden currently operates restaurant chains such as Olive Garden, LongHorn Steakhouse and The Specialty Restaurant Group. The company managed to grow comps in almost all its units in the third quarter. This is especially encouraging because the company’s core brand – Olive Garden – has been posting negative comps for the past few quarters.
Darden’s earnings from continuing operations of 99 cents beat the Zacks Consensus Estimate of 84 cents by 17.9% and increased 39% year over year backed by higher revenues and comps and lower interest expenses.
Comps growth, along with unit growth also led to revenue growth of 7% year over year. Sales were up in almost all the company’s units. At LongHorn Steakhouse, sales were up 11.4% to $404 million. Sales at Olive Garden increased 3% year over year to $957 million, whereas sales at The Specialty Restaurant Group went up 3% year over year to $957 million.
Darden’s overall comps grew 3.6% in the quarter. Importantly, the company’s decision to introduce smaller, individually portioned appetizers known as Bold Bites led to comps growth. Bold Bites are designed to satisfy guests who seek more portion and flavor, and hence were popular among diners who prefer a more customized menu.
Following such impressive results, the company increased its earnings per share guidance for fiscal 2015. Earnings are expected in the range of $2.45 to $2.48 compared with the previous expectation of $2.25 to $2.30, up 43% to 45% year over year. The company also raised the same restaurant sales growth guidance to a range of 2% to 2.5% from 1% to 2%.
It seems that Darden’s efforts to grow and develop LongHorn Steakhouse and Specialty Restaurants are yielding positive results. Moreover, the company’s Olive Garden Brand Renaissance plan that was launched to turn around its business seems to have started reaping benefits. In fact, analysts’ opinion associated with the stock is also very optimistic, with more than half of them upgrading their estimates for the current quarter.
Other Stocks to Consider
Some restaurateurs that have a favorable Zacks Rank include Jack in the Box Inc. JACK, BJ's Restaurants, Inc. BJRI and Dave & Buster's Entertainment, Inc. PLAY. All these stocks sport the same Zacks Rank as Darden.
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