Darden Binges on Puerto Rico

The multi-concept, full-service restaurant operator Darden Restaurants Inc. ( DRI - Analyst Report ) expanded its partnership agreement with Restaurant Operators to open its Red Lobster brand of restaurants in Puerto Rico.

Last year, Restaurant Operators inked a deal with Darden to develop and operate eight Olive Garden restaurants and a minimum of three additional LongHorn restaurants in Puerto Rico over the next seven years.

In fact, Restaurant Operators’ association with LongHorn Steakhouse dates back to the days before Darden acquired LongHorn’s parent company Rare Hospitality in August 2007. Restaurant Operators presently operates five LongHorn units in Puerto Rico.

Per the recently adjusted Area Development Agreement, Restaurant Operators will set up a minimum of eight Olive Garden, three Red Lobster and three additional LongHorn Steakhouse restaurants in Puerto Rico by 2017.

We believe the latest alliance reflects the restaurateur’s intent to make Puerto Rico one of the prime markets for Caribbean expansion, considering the under-penetration of quick-service restaurants in the region in comparison to North America. Moreover, the region is also gaining popularity as a tourist destination.

With its easy accessibility and focus on eco-tourism, Puerto Rico enjoys competitive advantage over any other Caribbean island. As a result, Puerto Rico witnesses a substantial increase in overall tourist traffic and the region’s food and beverage market remains flourishing.

Last year, Darden joined forces with Mexican casual dining company, CMR to enter the Mexican market last year. We believe that the company is trying to spread its presence beyond U.S. more aggressively following cut-throat competition in the rather saturated domestic casual dining market.

Darden currently retains a Zacks Rank #5 (Strong Sell). Instead, restaurant companies that warrant a look include Krispy Kreme Doughnuts Inc. ( KKD - Snapshot Report ) carrying a Zacks Rank #1 (Strong Buy) and AFC Enterprises Inc. ( AFCE - Snapshot Report ) and Bob Evans Farms Inc. ( BOBE - Snapshot Report ) both carrying Zacks Rank #2 (Buy).