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Darden (DRI) Now a Buy on Solid Results, Raised Guidance

DRI JACK TAST QSR

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On Oct 6, Zacks Investment Research upgraded the casual dining restaurant chain Darden Restaurants, Inc. (DRI - Free Report) by a notch to a Zacks Rank #2 (Buy).

The company recently reported its fiscal 2017 first-quarter results, wherein the top line beat the Zacks Consensus Estimate by 6% while the bottom line missed the same by a small margin.

In the reported quarter, the company achieved strong comps growth and witnessed increase in sales in all of its four reporting segments. This quarter also marked the company’s eighth consecutive earnings beat, with an average positive surprise of 9.3% in the trailing four quarters.

During the quarter, the company repurchased $196 million worth of common stock and also authorized a new share repurchase program, whereby it can buyback up to $500 million of its outstanding common shares.

Meanwhile, the company also raised its full-year fiscal 2017 adjusted earnings per share guidance. It now expects earnings in the range of $3.87–$3.97 per share (the previous projection was $3.80–$3.90), an increase of roughly 10–12% over the year-ago figure. Comps growth is also expected to be between 1% and 2% for fiscal 2017.

Also, upward estimate revisions reflect optimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2017 has moved north by 1.04% to $3.9 per share, over the last seven days. The company has witnessed four upward revisions for fiscal 2017 over the past month, as against zero downward revisions.

DARDEN RESTRNT Price and Consensus

Going forward, sales initiatives like simplifying kitchen systems, improving in-restaurant execution to enhance guest experience, menu innovation and technology-driven moves should boost the top line. Moreover, the company’s Olive Garden Brand Renaissance plan – aimed to turn around its business – has started reaping benefits. Initiatives undertaken to attract guests at LongHorn and other units also bode well.

However, rising labor costs and a non-franchised business model might dampen the company’s profits, while a soft consumer spending environment in the restaurant sector could keep comps under pressure.

Stocks to Consider

Other top-ranked stocks in the same sector include Restaurant Brands International, Inc. (QSR - Free Report) , Carrols Restaurant Group, Inc. (TAST - Free Report) and Jack in the Box, Inc. (JACK - Free Report) . While Restaurant Brands sports a Zacks Rank #1 (Strong Buy), Carrols and Jack in the Box carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Restaurant Brands has current year growth estimate of 39.2% compared with the industry average of 6.8%. Additionally, it has recorded an average positive earnings surprise of 20.1% over the past four quarters, with a beat in each.
 
Carrols has recorded an average positive earnings surprise of 221.67% over the past four quarters, with a beat in each. Additionally, its growth estimate for the full-year 2016 is pegged at 55.3% compared with the industry average of 6.8%

Jack in the Box’s growth estimate for the full year 2016 is 24.1% compared with the industry average of 6.8%. Also, its earnings estimate for fiscal 2017 has moved upward by 0.86% to $4.72 per share.

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