Buy Darden (DRI) Stock: The Turnaround Is Happening

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Darden Restaurants, Inc. (NYSE:DRI) stock, once considered dead weight by Wall Street, is doing what few thought was possible: executing its turnaround plan.

Darden Restaurants inc. dri stock buy after earningsThe full-service restaurant company, which owns such prominent brands as Olive Garden, LongHorn Steakhouse, Eddie V’s and The Capital Grille, just crushed fiscal third-quarter earnings estimates, raised its full-year earnings outlook and improved same-restaurant sales at all seven of its brands.

DRI stock, already up 31% in the last year and 10% year-to-date, added more than 4% in early trading on the news.

3Q Results Put Red Lobster Behind it

Earnings per share for DRI stock roared 28% higher from the fiscal third quarter of 2014, clocking in at $1.05 versus EPS of 82 cents in the comparable period. And, importantly, that walloped Wall Street estimates, which called for EPS of 84 cents.

DRI stock is a different beast than it was just two quarters ago, when lackluster results at its largest division, Olive Garden, had investors seriously doubting the growth prospects of the company. In September, Darden reported a same-restaurant sales slump of 1.3% at Olive Garden, showing few signs that the heavily pressured management team at the time could successfully orchestrate a turnaround.

In October, Darden CEO Clarence Otis resigned amid heavy pressure from activist hedge fund Starboard Value. The management shakeup seems to be working: same-restaurant sales at Olive Garden rose 2.2% in the most recent quarter, as pricing and the menu-mix combined to boost revenue despite a slight decrease in traffic.

Now that the dust has settled from last year’s $2.1 billion Red Lobster sale, the decision to rid itself of the struggling seafood chain looks like a wise move. Not only is Darden trimming its fat, DRI stock also pays a hefty 3.3% annual dividend to shareholders. Taken in conjunction with an accelerated share repurchase program that should see EPS rise between 43% and 45% in fiscal 2015, DRI stock is somewhat of a growth-dividend hybrid.

Let’s not forget that Darden and its portfolio of casual dining restaurants are also in good shape from a macro standpoint. Crude oil prices are off about 55% from their 52-week highs, sending the price of gas spiraling down with it. That should give consumers a little extra scratch to, oh, I don’t know, grab a meal at LongHorn Steakhouse or something.

With the unemployment rate (5.5%) at its lowest levels since May 2008 and job creation chugging along at its fastest pace in 15 years, consumer stocks like DRI, Chipotle Mexican Grill, Inc. (NYSE:CMG), Panera Bread Co (NASDAQ:PNRA) and others should enjoy tailwinds.

No, Darden doesn’t have quite the same growth prospects as a CMG or a PNRA, but it’s a leaner, smarter, and more efficient company than it was just six months ago, making DRI stock is a strong buy after its recent earnings beat.

As of this writing John Divine held no positions in any of the aforementioned stocks. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/buy-darden-dri-stock-the-turnaround-is-happening/.

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