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Darden Restaurants (DRI) Hits 52-Week High, Can the Run Continue?

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Have you been paying attention to shares of Darden Restaurants (DRI - Free Report) ? Shares have been on the move with the stock up 8.2% over the past month. The stock hit a new 52-week high of $119.1 in the previous session. Darden Restaurants has gained 23.8% since the start of the year compared to the 18.3% move for the Zacks Retail-Wholesale sector and the 2.8% return for the Zacks Retail - Restaurants industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on June 21, 2018, Darden Restaurants reported EPS of $1.39 versus consensus estimate of $1.35 while it beat the consensus revenue estimate by 0.57%.

For the current fiscal year, Darden Restaurants is expected to post earnings of $5.5 per share on $8.45 billion in revenues. This represents a 14.35% change in EPS on a 4.55% change in revenues. For the next fiscal year, the company is expected to earn $6.04 per share on $8.91 billion in revenues. This represents a year-over-year change of 9.68% and 5.41%, respectively.

Valuation Metrics

Darden Restaurants may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Darden Restaurants has a Value Score of D. The stock's Growth and Momentum Scores are A and D, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 21.6X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 15.9X versus its peer group's average of 14.5X. Additionally, the stock has a PEG ratio of 2.31. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Darden Restaurants currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Darden Restaurants meets the list of requirements. Thus, it seems as though Darden Restaurants shares could still be poised for more gains ahead.

How Does Darden Restaurants Stack Up to the Competition?

Shares of Darden Restaurants have been rising, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also looking good, including Carrols Restaurant Group (TAST - Free Report) , Ruth's Hospitality Group , and BJ's Restaurants (BJRI - Free Report) , all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Darden Restaurants. Still, the fundamentals for Darden Restaurants are promising, and it still has potential despite being at a 52-week high.


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