Sunday, February 21, 2016

Watch List: Darden Restaurants

Have you ever been to Red Lobster? Does your mouth salivate at the very thought of those delicious cheddar biscuits? How about Olive Garden's bread sticks? Do you like those? Do you crave them? If the answer is yes and you also possibly enjoy Long Horn Steakhouse or Bahama Breeze, then maybe DRI is your next acquisition. Darden Restaurants owns and operates nearly 1,900 of these locations in the US and Canada and it is the next stock on our watch list to be reviewed.


I love the fact that this stock has a strong 3.60% annual dividend yield. This equates to $2.20 annually and is paid to investors on a quarterly basis. This means that it could potentially add quite a bit to any dividend growth investors portfolio and it could do so with only a 66.3% payout ratio. This would suggest that it has a bit of room to grow before it gets into the danger zone of risking cutting further raises. They've also been raising their dividend annually for the past eight years so they are hardly green behind the ears.

Ex-Dividend Date:

Unfortunately, DRI has yet to release their upcoming ex-dividend date. They did however just have an ex-dividend date on the 6th of January for their last payout on the 1st of February. This is attractive as I do not have many stocks that currently make payments in February each year.


As of 2/20/2016, DRI is priced at $61.19/share. This is on the low end of their 52 week moving average of $53.38-75.60. This places it at 14.63% off of it's 52 week average and hints that it would be a good time to buy in if the sheets check out.


Once you start looking into the sheets of DRI, things get a little scrambled. Historically, their balance sheet supports that they had a hard time headed in an upward movement from 2011 all the way until 2014. Suddenly in 2015 however, they explode off the balance sheet and start soaring into the heavens. If we move to look at the income sheet, it becomes clear as to why. The company had a good amount of income in 2011 but then fell in 2012 and barely managed to raise it self up in 2013, again in 2014, and once again in 2015. Although it obviously took a beating in 2012 after a good fall, it appears that DRI has recovered nicely when it comes to a steady stream of raising income. All seems well and good until we reach the cash flow statements. DRI was up in 2011, down in 2012, but only barely, then up again in 2013 but steadily decreasing to where it lay in 2015. Over all, it has boasted an annual growth change of -11.93% EPS but a 17.06% dividend increase. This brings us to the current EPS of 2.79 and a not so friendly P/E ratio of 21.94x.

Social Media:

When we turn to social media however, DRI shows itself as a company that is very much loved by the community at large. Olive Garden is pretty much always praised. It lights up the Twitterverse like a bright shining star of "GIVE ME CARBS" and asks for a side of "why did I even order a dinner with these bread sticks?!". This gives the company a very good amount of brand recognition which helps to support a bright future for the company. On the other hand, the other brands that DRI owns seem to be a small blip in a very pro Olive Garden radar screen. This isn't particularly a bad thing but it does show that the company may need to cut back on other avenues and send more of their energy towards their real ticket to success.

Other than the general public, the analysts seem to be eating this stock up right now. There are basically no bad reviews on it. Most analysts seem to suggest that they are very bullish in acquiring the stock and they are doing so with the future expectation of being bearish and holding onto it.

Decision Time:

Over all, I like Darden Restaurants. They have a strong brand that is easily recognized by many and appears to continue to be a success in many communities. Their stock price is currently at a discount and their dividend is solid with more than a few years of successful raises. In addition, their sheets suggest that they can bounce back even after a fall. The only thing that I don't seem to like about the company is that the P/E ratio is over the 20x that I generally try to look for. This tells me that even though it may seem at a discount at the lower end of the 52 week moving average, it may not actually be such a discounted stock. However, there are others in the industry that have even higher P/E ratios such as TXRH that boasts a 28.05x currently. With all of this being said, I do like the business and I think they have more to give so I'll be adding them to my buy list. Let's just hope they drop their price just a little lower and then I can grab it up while it really is at a discount. 

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