Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

We are reverting to a Neutral recommendation on Darden Restaurants Inc. (DRI - Analyst Report) from Underperform owing to revival in same store sales in three of its struggling key brands – Red Lobster, Olive Garden and LongHorn Steakhouse in the fourth-quarter of 2013. However, some issues which might restrict margin growth keep us on the sidelines at the current level.

Why Back to Neutral?

Darden has undertaken a set of initiatives to trigger sales at three of its core brands. These include focusing on value-proposition and promotional offers, revealing affordable price certainties and introducing a new menu, all of which paid off in the fourth quarter of 2013. In fact, Darden remains poised to improve guest count and check growth through affordable pricing in 2014 owing to a soft consumer discretionary spending environment.

Another tailwind for the company is the emergence of its Specialty Restaurant Group (SRG) brand, which has grown steadily over the last couple of quarters. The Specialty Restaurant Group mainly caters to young, multicultural and high-income guests, which helps it to survive economic volatility. Further, two big ticket acquisitions in recent times -- Eddie V's and Yard House – will also boost the brand.

Despite these enthusiastic facts, some concerns prevent us from being too optimistic on the stock. Darden delivered lower-than-expected earnings this season, probably due to steeper-than-expected price discounting. Earnings also declined on a year-over-year basis.

Several issues like the Affordable Care Act, higher food and beverage expenses expected in the first half of fiscal 2014 as well as increased incentive compensation are expected to limit margin. Darden currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Others players in the same industry, which look attractive at current levels include The Wendy’s Co. (WEN - Analyst Report), Brinker International Inc. (EAT - Analyst Report) and BJ's Restaurants Inc. (BJRI - Analyst Report) all carrying a Zacks Rank #2 (Buy).
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
VERTEX ENERG VTNR 8.25 +10.59%
MODINE MANUF MOD 17.12 +8.77%
CLAYTON WILL CWEI 140.03 +7.27%
E*TRADE FINA ETFC 22.67 +5.44%
KNIGHTSBRIDG VLCCF 13.22 +5.42%