Darden Restaurants: Zacks’ Bull of the Day Play

Thanks to savings from lower gas prices, consumers are now more willing to open their wallets. Higher spending at restaurants has resulted in a positive momentum for  the industry in general.

About the Company     

Founded in 1968 and headquartered in Orlando, FL, Darden Restaurants (DRIAnalyst Report) is one of the largest casual dining restaurant operators worldwide. The company has operations in the US and Canada with more than 1,500 restaurants. The company owns and operates restaurant chains, primarily under the brands Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V s and Yard House.

Excellent Earnings and Upbeat Guidance

The company reported financial results for its fiscal third quarter on March 20. Total sales from continuing operations increased 6.9% to $1.73 billion, while adjusted earnings increased 39% to $0.99 per share, easily beating the Zacks Consensus Estimate of 84 cents. Higher revenues and comps and lower interest expenses contributed to the beat.

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 were up 3% year over year to $957 million.

Following excellent results, the company increased its earnings guidance for fiscal 2015. Earnings are expected in the range of $2.45 to $2.48 per share compared with the previous expectation of $2.25 to $2.30 per share, 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%.

Positive Earnings Estimates Revisions  

After excellent results and upbeat guidance, analysts have raised their estimates as well as price targets for the company. Zacks Consensus Estimates for the current year and the next year are now $2.49 and $2.76 per share respectively, up from $2.30 and $2.63 per share, 7 days ago. Rising estimates sent the stock back to Zacks Rank #1 (Strong Buy) after the results.

The Bottom Line

Recent results signify continued turnaround for the company after many years of weak growth, as the group remains focused on improving operational efficiency. During the conference call, the management also revealed that they are exploring opportunities to unlock shareholder value with their real estate holdings.

Further, the Restaurant industry has seen strong momentum of late as consumers are ready to spend more on eating out, thanks to savings from lower gas prices.

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