Monthly Archives: October 2015

Ameriprise: Zacks’ Bear of the Day Play

For obvious reasons, I’m hoping this market rally can continue. First, I like feeling rich. Second, my livelihood has direct ties to the market. But sometimes a bullish market gets too bullish across too many parts of the market. Often, that bullish attitude inflates the prices of equities that maybe shouldn’t have ran up as high as they did. This may be the case with today’s Bear of the Day, Ameriprise Financial (AMPAnalyst Report).

I have great admiration for Ameriprise as a company. The company was known as American Express Financial Advisors before a spinoff made them Ameriprise Financial. I owe my very existence in this business to AEFA as we affectionately called it. But like my old boss used to say, “That and a dollar will get you on the bus.” Lately, analysts haven’t been too bullish on the long term prospects of this financial services firm.

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Five analysts have dropped their earnings estimates for the current quarter, while six have done so for the current year. That’s in contrast to only one analyst increasing estimates. The bearish sentiment on Wall Street has dropped the Zacks Consensus Estimate for the current quarter from $2.52 to $2.35. The current year numbers had plummeted from $9.43 to $9.20. As a result, the stock price has come under pressure lately.

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After reaching a high near $138 in February, shares began to drop slowly. One by one support levels gave way until the real sharp drop in the market during August. In just about a week, AMP shares dropped from $124 down to $95 intraday on August 24th. The retest during September took shares to just above $102. Since then, a bit of a relief rally has shares approaching the $115 level but the chart looks a bit overbought here with a commodity channel index that pushed above 200.

Investors looking for other stocks within the same industry should take a look at Zacks Rank #1 (Strong Buy) Monroe Capital (MRCCSnapshot Report) and Zacks Rank #2 (Buy) stocks Medley Management (MDLYSnapshot Report).

David Bartosiak is the Momentum Stock Strategist with Zacks, editor of the Momentum Trader and Home Run Investor, and host of “Trending Stocks”

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CEVA: Zacks’ Bull of the Day Play

Sometimes to make money you’ve got to roll the dice a little bit. Following the crowd may work in certain markets and under the circumstances, but looking away from the beaten path could provide you with other worldly rewards. Getting in on the ground floor of a major market trend could turn you into a big time player. As long as you have the gusto to put your money where your mouth is.

There’s no question that the big players in the cell phone market here in the US are Apple and Samsung. Just ask people you work with or in your family what phone they have. You’re going to see a whole lot of iPhones and Galaxy S’s. Of course, these are the high end phones that everyone may want but not everyone wants to pay for. Lately there’s been an emergence in the second-tier Android phone market. These phones offer similar performance at a much cheaper price. Think Intel (INTCAnalyst Reportand AMD (AMDAnalyst Report) in the computer market.

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Today’s Bull of the Day provides chips for this second-tier Android market. CEVA (CEVASnapshot Report) is a Zacks Rank #1 (Strong Buy) that’s already preannounced Q3 earnings, expecting stronger-than-expected revenues and lower-than-expected operating expenses. CEVA was a major player in the 2G market, taking the majority of the market share in that business. It looks like the Android smartphone market is currently in a transition. Lower cost handsets with similar features are driving down phone costs across the board. That opens the window for a company like CEVA to jump in and grab market share here in the 4G market over the next several quarters.

Their 4G/LTE chips are being utilized by four different customers now. Already, production in this space is up 7% quarter over quarter and 19% year over year. The bullish attitude has analysts increasing their earnings estimates for the current quarter and current year. Our Zacks Consensus Estimate has increased from 6 cents to 11 cents for the current quarter and up from 16 cents to 28 cents for the current year.

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The stock has been on fire since the preannouncement in early October. With the stock trading down at $18, the preannouncement was enough to catapult shares all the way to a new 52-week high here near $24. Volumes have remained relatively average over the last several months. The 20-day moving average sits down at $21.82, further hammering home the current bullish trend.

David Bartosiak is the Momentum Stock Strategist with Zacks, editor of the Momentum Trader and Home Run Investor, and host of “Trending Stocks”

USG Corporation: Zacks’ Bear of the Day Play

USG Corporation (USGSnapshot Report) delivered weaker-than-expected Q3 results last week, including a nearly 9% miss on the bottom line as gypsum wallboard sales declined amidst lower volumes and pricing power.

Management does not provide specific revenue or EPS guidance, but they did communicate that they expect weak volume in wallboard to continue into 4Q15 with a rebound in 2016.

This propelled the majority of USG analysts to quickly cut estimates for this year and next, essentially wiping out any positive growth projections for 2016.

Here are the Zacks Detailed EPS tables which tell the continued tale of downward trending estimates for the wallboard maker who depends on 55% of sales from that product…

Uncertainty Prevails

The main theme for analysts after last week’s report was a lot of head-scratching. Analysts were not sure they understood why in the middle of a booming housing market, USG’s volumes and pricing power should be under pressure.

USG believes it could be a lengthening of the lag to housing starts with the trend towards multi-family units. In other words, there is a longer lag from start to installation of wallboard with bigger high-rise projects. Management also talked about a shortage of skilled labor.

Whatever the reasons, the analysts have pushed estimates lower for several quarters forward until the outlook is clearer. Until then, just keep your eye on the Zacks Rank to know when the earnings momentum turns around.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

Masco: Zacks’ Bull of the Day Play

Masco Corporation (MASAnalyst Report) is one the world’s leading manufacturers of branded home improvement and building products. The company has over 30 quality building products manufacturers in its family.

Approximately 81% of the company’s sales in 2014 were generated from operations in North America, primarily in the U.S. Around 19% of the company’s sales are generated outside the U.S., mainly in Europe.

The stock actually became a Zacks #1 Rank before they reported earnings on Tuesday October 27, as estimates rose ahead of their Q3 report. Tuesday’s 10% earnings beat might solidify that spot if analysts like what else they hear about guidance.

Masco Riding the Housing Boom

Masco operates through four primary business segments: Plumbing Products, Cabinets and Related Products, Decorative Architectural Products, and Other Specialty Products, which includes a full range of windows and doors, manual and electric staple gun tackers, staples and other fastening tools.

Adjusted Q3 earnings increased 26% year over year driven by strong margins, partially offset by unfavorable foreign currency. North American sales increased 3% year over year to $1.46 billion driven by growing demand for repair and remodeling, and new home construction products in an improving U.S. economy.

Masco’s net sales of $1.84 billion missed the Zacks Consensus Estimate of $1.89 billion by 2.7%. Revenues were flat from the prior-year quarter as sales growth in the Decorative Architectural Products and Other Specialty was mostly offset by unfavorable foreign currency and soft revenues in the Installation and Cabinet segments. However, excluding the impact of currency translations, organic revenues increased 4% year over year.

Margins Up, Cabinets Down

Adjusted gross profit grew 6.7% to $587 million. Adjusted gross margin improved 190 basis points (bps) to 31.9%. Adjusted operating profit was $257 million, up 15.8% from the prior-year quarter.

Adjusted operating margin increased 190 bps year over year to 14%, driven by increased operating leverage and solid cost controls. Operating margin increased 250 bps in North America to 15.9%. Operating margin however decreased 30 bps in international markets to 13.0%.

Cabinets and Related Products saw segment revenues of $253 million, which was a decline of 5% year over year owing to the exit of the low-margin direct-to-builder business, partially offset by strong sales growth of KraftMaid Cabinetry with home centers and dealers.

Adjusted operating profit of $19 million for the segment compared favorably with an operating loss of $7 million in the prior-year quarter, driven by higher operating efficiencies. Adjusted operating margin stood at 7.5% in the quarter, a complete turnaround from -2.6% in the prior-year quarter.

Waiting for More Analyst Reaction

Masco shares initially opened lower on Tuesday morning after this Q3 report as investors interpreted the results as mixed.

But buyers came in all morning and afternoon on strong volume pushing the stock up near its 52-week high at $28.59, which is not far from its 2006-07 highs above $29.

The rest of the week will tell us if the analysts see Masco’s earnings momentum carrying into 2016 on the strong US housing market. Keep an eye on the Zacks Rank to let you know where they stand.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

Harley-Davidson: Zacks’ Bear of the Day Play

Harley-Davidson (HOGAnalyst Report) hasn’t been on my radar for a long time. How long? Well last time I thought about Harley as either a trading or investment vehicle, its ticker was HDI. I was surprised to see that the ticker changed, and I sort of like it for the icon maker of motorcycles. HOG’s earnings report recently “dropped the bike” a phrase riders use instead of saying “laying it down” or more commonly “an accident.” As a result of the miss and lower estimates, HOG is now a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day.Description

If you have to ask, you wouldn’t understand. That is a tag line I remember from the old days of when I wanted to buy a Sportster 883 or a Softail. I am a bit older now, and let’s face it, my wife simply wouldn’t allow it. I get the idea of “potato-potato-potato” and so do millions of other Americans that love their two-wheelers and the wind in their hair. If you can’t tell, I love the story of the last American mortocycle manufacturer, which is what Harley-Davidson is.

Personal Note

At one time, when I was slightly less mentally challenged, I owned 3 motorcycles. My friends would ask me to ride them all at once, and what is even dumber, I think I tried to do that. Since none of my bikes where Harley’s, I figured it wouldn’t be a huge loss if my 250CC or my 750CC water buffalo hit the pavement. To this day I still give the motorcycle wave to most bikers and think of this note as a gentle reminder to share the road and keep an eye out for bikers.

Recent Miss

On October 20, the company reported earnings of $0.69, and that was $0.09 below the Zacks Consensus Estimate. Revenue of $1.140B was also below expectations and as a result the stock fell 16% in the session following the release.

Valuation

Following that miss the valuation for HOG was hit, but the stock still trades at a premium to the industry average. A 13x forward PE is still above the 11.4x industry average and the stock trades at nearly double the industry average multiple for price to book (HOG at 3.9x vs 2x). A price to sales multiple of 1.9x is also well above the industry average of 0.7x, and is at a 3 year low for that metric.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represent analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #5 (Strong Sell) we see that estimates are moving lower.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Stocks Under $10, an investor service , where he recommends the stocks in the portfolio.

Brian also runs the brand new Zacks Game Changers where he looks for stocks that are disrupting their industries and reaping big gains.

Novavax; Zacks’ Bull of the Day Play

Novavax (NVAXSnapshot Report) saw its stock move higher as Ebola scares gripped the nation. Since then, concerns of drug prices being too high has hurt the entire industry and maybe disproportionately hurt shares of NVAX. Analysts have actually become more bullish on the stock and have raised The increases in earnings estimates have helped push the stock to a Zacks Rank #1 (Strong Buy) and today it is the Bull of the Day.Two Recent Quarters

The chart below shows that the company has been able to beat the Zacks Consensus Estimate in each of the last two quarters. Yes they were only beats of one cent, but the market really liked the results.

NVAX posted a loss of $0.10 in the March 2015 quarter with a revenue miss of $1M or 1.23% on the top line. The bottom line beat was enough to push investors to buy the stock, which rose 4.4% in the session following the release.

The following quarter saw a big beat on the top line, and the stock was off to the races. Along with the one cent beat on the bottom line (loss of $0.08 vs a loss of $0.09), the company posted revenues of $14M when the Zacks Consensus was calling for $10M. That topline beat made investors happy, and the result was a stock price that was higher by 28.3% in the session following the release. That was a big move and was just about the top for the stock.

Description

Novavax is a biotech that focuses on recombinant nanoparticle vaccines and adjuvants. The company produces its vaccines using its proprietary recombinant nanoparticle vaccine technology. Its product pipeline includes respiratory syncytial virus (RSV) vaccine candidates for elderly and maternal immunizations. The company was founded in 1987 and is headquartered in Gaithersburg, Maryland.

Valuation

The valuation for NVAX isn’t what you would find for most stocks. Biotechs are held to different standards as they generally have a long road of non-profitability ahead of them. That said, this one is showing some great growth numbers, or at least it has. The company saw revenues grow 47% in 2014 and the current expectation is calling for nearly 50% revenue growth this year.

Analysts don’t have that much visibility into 2016 for this company, so they are likely being a little conservative right now in projecting a year over year decrease of 12%.

The metrics we normally look to show a little premium for shares of NVAX. The price to book multiple of 5x is higher than the 3.5x multiple that the industry average sports. The price to sales multiple of 49x is awfully big, especially with contraction expected next year. The industry average for a price to sales multiple is 3.5x, so even at these lower levels, NVAX trades at a premium to that metric.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Stocks Under $10, an investor service , where he recommends the stocks in the portfolio.

Brian also runs the brand new Zacks Game Changers where he looks for stocks that are disrupting their industries and reaping big gains.

Halliburton: Zacks’ Bear of the Day Play

Halliburton Company (HALAnalyst Report) continues to feel the pressure of the weak energy industry. This Zacks Rank #5 (Strong Sell) is expected to see declining earnings the next 2 years.

Halliburton provides services and products to the energy industry worldwide. It offers products to customers from exploration to drilling to well construction and completion to optimizing production.

Beat on Earnings in Q3 But Revenue Declined

On Oct 19, Halliburton reported third quarter results and surprised the Street by actually beating the Zacks Consensus by 4 cents.

However, total company revenue fell 6% to $5.6 billion sequentially. North America led the decline, falling 7% sequentially, due to continued declines in activity and pricing pressure.

Mirroring what Schlumberger said, it saw another step down in activity in the industry in the third quarter.

It continues to move forward with its acquisition of Baker Hughes, however. That deal is still expected to close later this year.

Analysts Down Beat

There’s nothing the energy companies can do but admit that the market conditions are challenging.

But the turnaround doesn’t seem imminent either.

16 estimates were cut for the full year in the last 30 days. It has pushed the Zacks Consensus down to $1.47 from $1.60. That is an earnings decline of 63% compared to 2014 when it made $4.02.

The analysts don’t see a turnaround in 2016 either. Earnings are expected to decline another 14%.

Are Shares a Deal?

Like the rest of the energy industry, Halliburton’s shares have plunged.

But they’re not exactly a deal either with a forward P/E of 26. And earnings show no sign of a recovery soon.

If you must buy a stock in the energy sector, consider only those with the best Zacks Ranks. Gulfmark Offshore, Inc. ((GLFSnapshot Report) is a Zacks Rank #2 (Buy).

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Hawaiian Holdings: Zacks’ Bull of the Day Play

Hawaiian Holdings, Inc. (HASnapshot Report), the parent of Hawaiian Airlines, continues to cash in on strong travel demand and low fuel prices. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by 95% this year.

Hawaiian is Hawaii’s biggest airline. It has been serving the islands for 86 years and offers non-stop service to 11 gateway US cities.

It also has been expanding its international offerings, with service from Japan, South Korea, China, Australia, New Zealand, American Samoa and Tahiti.

Hawaiian also specializes in inter-island travel, with more than 160 daily flights between the Hawaiian Islands.

A Third Quarter Beat

On Oct 19, Hawaiian reported its third quarter results and beat the Zacks Consensus by 10 cents. Earnings were $1.29 compared to the consensus of $1.19.

Lower fuel prices and strong demand is making up for growth in industry capacity between the US west coast and Hawaii as well as the strength of the US dollar.

Adjusted pre-tax margin was 20% compared to just 12.6% in the prior year period.

The company is flush with cash. As of Sep 30, it had unrestricted cash, cash equivalents and short-term investments of $611 million.

New Lie-Flat Seats Coming Soon

With industry pressures to stand out in a crowded Hawaiian Islands market, Hawaiian is finally biting the bullet and will add luxury lie-flat seating to all 22 of its A330 aircraft. They are expected to be outfitted with the new seating arrangement by mid-2017.

The company is partnering with Optimares, an Italian manufacturer, to design the seats which will lie flat like a bed. They will come in pairs of two.

As a part of the new configuration, it will also add 28 additional Extra Comfort seats on each plane which has 36 inches of seat pitch, priority boarding at the gate, complimentary on-demand in-seat entertainment and a personal power outlet.

The new configuration will eliminate 16 seats, which is always a danger for the airlines which usually opt for more capacity over comfort.

The new planes will fly 278 passengers with 18 in Business/First Class, 68 in Extra Comfort and 192 in the Main Cabin. That is down from 40 in Extra Comfort and 236 in the Main Cabin.

The more prestigious seats will cost more money so Hawaiian is betting on more demand for the more luxurious seats.

Analysts Are Bullish

Analysts liked the earnings report and all of the company’s recent news. 3 estimates were raised in the last week pushing up the Zacks Consensus Estimate for 2015 to $3.03 from $2.87.

That is nearly double the 2014 earnings, which were $1.55.

Is It Too Late To Get In?

Shares keep hitting new all-time highs on the good news.

In the last year, they are up 105%.

With shares up that sharply, it seems too late to get on board.

But shares still have attractive valuations. They are trading with a forward P/E of 10.8. Hawaiian also has a Zacks Style Score for value of A, the top rating.

The airline sector is heating up again. After being the best performing industry in 2014 thanks to falling fuel prices, it looks like they’re going to end 2015 on another strong note.

For investors looking to get into the airline stocks, Hawaiian is definitely one to keep on the short list.

Want More of Our Best Recommendations?

Zacks’ Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Schlumberger: Zacks’ Bear of the Day Play

Earnings estimates have fallen sharply for Schlumberger (SLBAnalyst Report) following its Q3 earnings report. The drop in consensus estimates has been significant enough to send the stock to a Zacks Rank #5 (Strong Sell).

Schlumberger continues to face major headwinds as a result of the plunge in oil prices. This has led to not only a drop in revenue but in profit margins as well. And the valuation picture doesn’t look very compelling with shares trading at more than 20x forward earnings.

Schlumberger provides a wide range of products and services to the oil and gas exploration and production industry. The company manages its business through three groups:

  • Reservoir Characterization (27% of total revenue in Q3), which is involved in finding and defining hydrocarbon resources.
  • Drilling (38%), which is involved in the drilling and positioning of oil and gas wells.
  • Production (35%), which is involved in the lifetime production of oil and gas reservoirs.

Third Quarter Results

Schlumberger reported its third quarter results on October 15. Revenue plunged 33% year-over-year to $8.472 billion, missing the Zacks Consensus Estimate of $8.556 billion.

Revenue fell 31% in the Reservoir Characterization segment, primarily due to “sustained cuts in exploration spending”. Revenue plunged 32% in the Drilling segment, primarily due to “persistent international pricing pressure and activity declines”. And revenue declined 35% in the Production segment, primarily due to “customer budget constraints in the International markets”.

Operating income was cut nearly in half as the operating margin fell from 20.6% to 15.8% of revenue. Earnings per share fell 48% to $0.78, although this was ahead of the Zacks Consensus Estimate of $0.76.

The cash flow picture is not as weak for Schlumberger though. The company generated $6.6 billion in operating cash flow through the first nine months of 2015, which is down just 9% year-over-year.

Estimates Falling

Analysts virtually unanimously lowered their earnings estimates for both 2015 and 2016 following the Q3 report. This was significant enough to send the stock to a Zacks Rank #5 (Strong Sell).

Unsurprisingly, this negative earnings momentum has persisted since the second half of 2014, when oil prices began to plunge, as you can see in Schlumberger’s “Price & Consensus” chart:

The current Zacks Consensus Estimate for 2015 is $3.40, down from $3.56 sixty days ago. The 2016 consensus estimate is now $2.93, down from $3.85 over the same period.

Valuation

Unless oil prices suddenly surge and production ramps up, Schlumberger doesn’t look like a screaming value here. The stock trades at 23x 12-month forward earnings, and that’s if earnings estimates stop declining.

The Zacks Value Style Score for Schlumberger is a ‘D’.

The Bottom Line

With major industry headwinds, falling revenue and profit margins, persistently declining earnings estimates and a forward P/E north of 20, Schlumberger doesn’t offer investors much to like right here.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

Darden: Zacks’ Bull of the Day Play

Darden Restaurants (DRIAnalyst Report) recently delivered a strong “beat and raise”, driven by same-store sales growth across all eight of its brands and rapidly expanding profit margins. Management also increased its full year EPS guidance, prompting analysts to revise their estimates significantly higher too.

This move sent the stock to a Zacks Rank #1 (Strong Buy).

Darden Restaurants owns and operates more than 1,500 restaurants under eight brands, primarily in the United States. Its two largest brands are Olive Garden and LongHorn Steakhouse, which account for 86% of total restaurants. Darden sold the Red Lobster brand in 2014.

Starboard Value, an activist hedge fund, was able to win shareholder support to replace the entire board of directors last fall. One of the results of this move was that the company will transfer 424 of its restaurants into a publicly traded real-estate investment trust (Four Corners) and lease most of them back to Darden. The spin is expected to be completely by the end of the year.

First Quarter Results

Darden delivered a solid “beat and raise” on September 22. Adjusted earnings per share came in at $0.68, beating the Zacks Consensus Estimate by 10 cents. It was a whopping 113% increase over the same quarter last year.

Total sales rose 6% to $1.687 billion, ahead of the consensus of $1.676 billion. This was driven in large part by a 3.4% increase in same-store sales. All eight of Darden’s brands delivered positive same-store sales growth, including 2.7% growth at Olive Garden and 4.4% growth at LongHorn.

Like many restaurants, Darden is benefiting from higher disposable income among American consumers thanks to lower gas prices and an improving labor market.

Margin expansion was substantial in the quarter too, driven largely by operating leverage and cost savings initiatives. Cash flow was strong too. Operating cash flow rose 79% to $138.0 million.

Estimates Rising

Following solid Q1 results, management increased its full year fiscal 2016 EPS guidance to $3.15-$3.30, up from the $3.05-$3.20. This prompted analysts to revise their estimates significantly higher for both fiscal 2016 and 2017, sending the stock to a Zacks Rank #1 (Strong Buy).

As you can see, consensus estimates have steadily marched higher over the last several months as Darden has delivered five consecutive positive earnings surprises:

Based on consensus estimates, analysts project 23% EPS growth in 2016 and 14% EPS growth in 2017.

Valuation & Yield

Shares of Darden trade at less than 19x 12-month forward earnings. That’s not cheap, but it at least seems justified by current EPS growth projections. Darden’s enterprise value to trailing EBIT ratio of 17 is a slight premium to the industry median.

Darden also pays a dividend that yields a solid 3.5%.

The Bottom Line

With rising same-store sales, profit margin expansion and positive earnings momentum, Darden still offers investors attractive upside potential.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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