Darden Restaurants (NYSE: DRI) operates
about 1,700 casual dining restaurants in the United States and Canada. Its Red Lobster (seafood), Olive Garden (Italian cuisine), LongHorn Steakhouse (steak), Bahama Breeze (Caribbean items) and Capital Grille (steak) chains cater to families, with mid-priced menu items and generally suburban locations. A small group of Seasons 52 restaurants feature a casual grill and wine bar concept. Brinker International (NYSE: EAT) and Chipotle Mexican Grill (NYSE: CMG) are competitors.
The company pleased investors last week, when it guided fiscal Q3 EPS to 83-85 cents. Analysts had been looking for 77 cents. Management also said it expected Y08 EPS of about $2.71-$2.76 ($2.66 consensus).
DRI shares
popped on the news and have since settled into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Brokers recommend the issue with three "strong buys", five "buys", eight "holds" and one "sell". The DRI P/E ratio (12.23), PEG ratio (0.99), Price to Sales ratio (0.74), Price to Book ratio (3.36), Price to Cash Flow ratio (7.56), Price to Free Cash Flow ratio (18.75), Return on Assets (9.31%), Return on Investment (13.37%) and Return on Equity (28.43%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 77% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $20.89 and $47.60. A stop-loss of $26.25 looks good here. Note that the firm is expected to announce Q3 results in mid-March.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.
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