6 Reasons Why Darden Restaurants (DRI) Stock is Worth Buying
A wise investment decision involves buying well-performing stocks at the right time, while selling those that are at risk. A rise in share price and strong fundamentals signal a stock’s bullish run.
Darden Restaurants, Inc. DRI is a restaurant stock that has performed extremely well in recent times and has the potential to carry on the momentum in the near term. Therefore, if you haven’t taken advantage of the share price appreciation yet, it’s time you add the stock to your portfolio.
Why an Attractive Pick?
Upside in Shares: A glimpse of the company’s price trend reveals that the stock has had an impressive run on the bourse in the last six months. Darden Restaurants has returned 13.3%, which compares favorably with the industry’s gain of 7.7%.
Solid Rank & VGM Score: The company sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or #2 (Buy) offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.
Northward Estimate Revisions: In the past 60 days, 13 estimates for fiscal 2018 moved north versus no southward revisions, reflecting growing analysts’ confidence in the company. Over the same period, the Zacks Consensus Estimate for the current year increased 7%.
Positive Earnings Surprise History: Darden Restaurants has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 2.97%.
Darden Restaurants, Inc. Price and EPS Surprise
Darden Restaurants, Inc. Price and EPS Surprise | Darden Restaurants, Inc. Quote
Strong Growth Prospects: The Zacks Consensus Estimate for fiscal 2018 earnings of $8.01 reflects year-over-year growth of 11.8%. Moreover, earnings are expected to register 5.3% growth in fiscal 2019. The stock has long-term expected earnings per share growth rate of 10.3%. The stock has long-term expected earnings per share growth rate of 10.9%.
Growth Drivers: The acquisition of Cheddar's (Cheddar's Scratch Kitchen) in April 2017 seems to be a great fit in the company’s portfolio. Besides complementing its existing brands, it is also attracting customers given its extensive appeal. This in turn is driving Darden’s comps and resultantly sales.
The Brand Renaissance Plan for Olive Garden is boosting its top line. The plan includes simplifying kitchen systems, improving sales planning and scheduling, achieving operational excellence to improve guest experience, developing new core menu items, allowing customization and making smarter promotional investments.
Also, the brand is focusing on remodeling and bar refreshes. The revamped restaurants are generating high same-restaurant sales and returns.
Darden is also focusing on technology-driven initiatives, like the system wide rollout of tablets in order to capitalize on the digital wave that has hit the U.S. fast casual restaurant sector. This initiative has been boosting sales and the trend is expected to continue.
Meanwhile, Olive Garden’s To Go business, which offers online ordering at selected locations, is also growing rapidly (increasing 12% year over year in the fiscal second quarter). The company has also launched catering in the United States, which is expected to add to its top line.
Initiatives to attract guests at LongHorn by focusing on core menu, culinary innovation and providing regional flavors also bode well. Darden is also working on its marketing strategy to improve execution; customer relationship management and digital advertising as well as a strong promotional pipeline that leverages the segment’s expertise.
Meanwhile, Capital Grille, Yard House, Seasons 52, Bahama Breeze and Eddie V have also posted positive comps in most of the quarters since the beginning of fiscal 2014. Various initiatives undertaken and personalized services continue to boost sales.
The company is focusing on an aggressive cost management plan, per which it has been able to significantly cut operating costs. In fact, for fiscal 2018, the company expects 10-40 basis points year-over-year margin expansion as a result of cost savings. Moreover, the company plans to reinvest any incremental savings into pricing and long-term growth drivers for the business, particularly emphasizing on enhancing quality to drive market share gains.
Other Stocks to Consider
Some top-ranked stocks in the same space are Del Frisco's Restaurant Group DFRG, Cracker Barrel Old Country Store CBRL and BJ's Restaurants BJRI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Del Frisco's, Cracker Barrel and BJ's Restaurants is projected to be 11%, 8.9% and 15.3%, respectively.
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Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
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