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Can Darden Restaurants (DRI) Run Higher on Rising Earnings Estimates?

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Zacks Equity Research
·3 min read
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Darden Restaurants (DRI) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this owner of Olive Garden and other chain restaurants, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for Darden Restaurants, as there has been strong agreement among the covering analysts in raising estimates.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $1.68 per share, which is a change of +235.48% from the year-ago reported number.

Over the last 30 days, 11 estimates have moved higher for Darden Restaurants while one has gone lower. As a result, the Zacks Consensus Estimate has increased 32.91%.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $3.91 per share represents a change of +24.92% from the year-ago number.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, 12 estimates have moved up for Darden Restaurants versus one negative revision. This has pushed the consensus estimate 19.83% higher.

Favorable Zacks Rank

Thanks to promising estimate revisions, Darden Restaurants currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Darden Restaurants because of its solid estimate revisions, as evident from the stock's 5.6% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report

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