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Shares of Darden Restaurants (DRI), which I first wrote about on June 25, 2009 at a price of $32.78, have raced ahead. Is there any upside left? Let's see...Look for Darden's same store sales (in this case, restaurants) to rise 2-3% in fiscal 2011, after a roughly flat fiscal 2010. That doesn't sound like much of a revenue increase, but in the hard-hit restaurant sector, that's adequate.
How has Darden managed to survive while others have not during the initial stage of the 'frugal consumer' era? By taking a defensive stance in the recession -- increasing its store base by only about 3%, no significant menu price increases, and good cost controls. Also, two of Darden's chains have established niches in the casual dining segment: 1) Olive Garden, Darden's top performer, with 691 restaurants, has struck the right balance among freshness, originality, and price; and 2) Red Lobster, is a 690-restaurant seafood place that has built a cadre of dedicated customers over the past two decades.
Even so, the restaurant sector likely faces an additional 2-4 years of consolidation, and reinvention, with ten of thousands of restaurant outlets closures; but look for Darden to snare a significant portion of the shrinking pie. In short, Darden will be a restaurant chain survivor.
Technically, Darden's shares have raced ahead and are slightly overbought, short-term. Typically, the stance would be to wait for a pull-back, but not with DRI, as the shares still look attractive here.
The First Call FY2010/FY2011 EPS estimates for DRI are $2.87 to $3.17. Each looks a tad low, according to my analysis.
2010 Outlook: I view Darden as a long-term play, but if investors are looking to sell CSX within the year, it's probably best to take your profits after it rises to $48-49, if it fails to hurdle above $50.
Stock Analysis: I consider Darden Restaurants to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in DRI now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my DRI position before April 2010 and I'd put a sell/stop loss at: $21.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
Even so, the restaurant sector likely faces an additional 2-4 years of consolidation, and reinvention, with ten of thousands of restaurant outlets closures; but look for Darden to snare a significant portion of the shrinking pie. In short, Darden will be a restaurant chain survivor.
Technically, Darden's shares have raced ahead and are slightly overbought, short-term. Typically, the stance would be to wait for a pull-back, but not with DRI, as the shares still look attractive here.
The First Call FY2010/FY2011 EPS estimates for DRI are $2.87 to $3.17. Each looks a tad low, according to my analysis.
2010 Outlook: I view Darden as a long-term play, but if investors are looking to sell CSX within the year, it's probably best to take your profits after it rises to $48-49, if it fails to hurdle above $50.
Stock Analysis: I consider Darden Restaurants to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in DRI now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my DRI position before April 2010 and I'd put a sell/stop loss at: $21.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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