Darden Restaurants (DRI) has posted one disappointing earnings report after another.
However, now that Darden Restaurants has sold Red Lobster and has undergone a complete executive shakeup, could this signal a turnaround for the restaurant operator?
Company Overview
Many have heard of American restaurant chains Olive Garden, Bahama Breeze and Longhorn Steakhouse, but few know that they are all owned and operated by Darden Restaurants. Based in Orlando, Florida, Darden Restaurants rakes in $6.3 billion in annual sales, but a good chunk of those sales go to food and supplies.
Recently, Darden Restaurants has been making the news due to a series of executive shakeups. Last week, hedge fund Starboard Value — Darden’s second-largest shareholder — succeeding in replacing the entire board of directors with its hand-picked representatives. Today, CEO Clarence Otis stepped down, to be replaced by COO Gene Lee in the interim.
Future Outlook
DRI stock currently yields 4.5%, but I wouldn’t recommend DRI stock for even the most avid of yield seekers — here’s why.
The bottom line is that Darden Restaurants’ sales and earnings prospects for the near-future leave something to be desired. This quarter, Darden is expected to earn 27 cents per share on $1.55 billion, which represents nearly a 25% year-on-year drop in sales! Looking ahead to fiscal 2014, DRI is headed for a 23.7% year-on-year drop in sales. Earnings-per-share is expected to be 3.8% lower year over year.
Current Ratings
The past 12 months have been rough for Darden Restaurants — DRI stock has spent much of the year in “sell” territory due to a one-two punch of poor fundamentals (“D-rated” Fundamental Grade) and nonexistent institutional buying pressure (“C-rated” Quantitative Grade).
Of the eight fundamental metrics I graded this stock on, DRI outright fails on four: Operating margin growth, earnings growth, earnings momentum and cash flow. The other four metrics are “C-rated”: Sales growth, earning surprises, analyst earnings revisions and return on equity.
Still, I consider DRI a “C-rated hold.” It is too soon to tell whether these board changes will result in any meaningful improvements to the company’s bottom line.
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Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
