DRI – Head for the Door and Sell Darden Stock

by Louis Navellier | December 26, 2013 10:30 am

Welcome to the Stock of the Day!

Darden185 DRI   Head for the Door and Sell Darden Stock [1]Darden Restaurant’s  (DRI[2]) has given investors heartburn after posting one disappointing earnings report after another. But now that the company is looking to shed its failing Red Lobster chain[3], could 2014 hold better fortunes for the restaurant operator? Find out in today’s Stock of the Day.

Company Overview

Many have heard of American restaurant chains Olive Garden, Red Lobster or Longhorn Steakhouse, but few know that they are all owned and operated by Darden Restaurants. Based in Orlando, Florida this company rakes in $8.5 billion in annual sales but a good chunk of those sales go to food and supplies. Darden recently announced that it plans to sell or spin-off its Red Lobster chain, which has been struggling of late.

Earnings Rundown

In the second quarter, Darden Restaurants faced higher costs and expenses, which weighed on the company’s bottom line. Compared with the same quarter last year, net earnings plunged 43% to $19.08 million, or 15 cents per share. This missed analyst estimates of 20 cents per share by a wide mile. Over the same period, quarterly sales climbed 5% to $2.04 billion, but this still missed the consensus estimate of $2.07 billion.

Future Outlook

The company also declared a quarterly dividend of 55 cents per share, but not even DRI’s hefty 4% dividend yield would get me to buy this stock, especially given its earnings prospects for this quarter. While the Restaurants industry average is 21% earnings growth in the current quarter, Darden Restaurant’s bottom line is expected to shrink 2.9%.

And Darden could do even worse, considering that analysts have slashed their estimates by 9% over the past three months. I don’t like those odds. Looking ahead to FY 2014, DRI is headed towards a 14.7% year-on-year drop in earnings.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader[4] ratings system. 2013 has not been a good year for Darden Restaurants–the stock has spent much of the past 12 months at a D-rated sell. This is due to a one-two punch of poor fundamentals (earning a D-rated Fundamental Grade) and nonexistent institutional buying pressure (D-rated Quantitative Grade).

Our of the eight fundamental metrics I graded this stock on, DRI outright fails on five, including operating margin growth, earnings growth and cash flow. The only area where Darden is doing OK is its A-rated return on equity. However, this hasn’t been enough to attract institutional interest, so DRI is still a sell.

Bottom Line: As of this posting I consider DRI a D-rated Sell.

Sound Off: What do you think about DRI? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook. For more stock grades and commentary, please visit NavellierGrowth.com[5]!

 

 

Endnotes:
  1. [Image]: http://investorplace.com/wp-admin/stocks-to-sell
  2. DRI: http://studio-5.financialcontent.com/investplace/quote?Symbol=DRI
  3. failing Red Lobster chain: http://investorplace.com/2013/12/dri-stock-darden-stock-dri/#.Urw8Tvv-L08
  4. Portfolio Grader: http://www.navelliergrowth.investorplace.com/portfolio-grader/
  5. NavellierGrowth.com: http://www.navelliergrowth.investorplace.com/

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