Darden: If You’re Hungry For Restaurant Stocks, Feast On DRI

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Darden (DRI) has had quite a couple years.

Darden: If You're Hungry For Restaurant Stocks, Feast On DRIFirst, in the summer of 2014 it sells its flagship restaurant chain, Red Lobster, to a private equity firm.

There was talk that Red Lobster was either sinking DRI stock or was keeping it alive. The sale would determine who was correct.

The stock price at the time indicated that the big money was betting against DRI spinning off the massive chain successfully while building up its other brands, numbering 1,500 restaurants across the U.S., Canada and Puerto Rico. It owns massive brands Olive Garden and Longhorn Steakhouse, along with boutique properties like beach-themed Bahama Breeze, upscale steakhouse Capital Grille, fresh dining Seasons 52, seafood houses Eddie V’s and Wild Seafood Grill and New-American brewhouse Yard House.

If you look at that portfolio, what you see is a lot of synergies when it comes to buying products that can move up and down the price points. It’s a very smart strategy and helps DRI control costs across its brands as well as helping it maintain consistent quality at all its properties.

DRI Stock Perfectly Positioned

Looking back, it seems the big money was wrong. Now that energy prices have dropped, food prices have stabilized and as the U.S. economy slowly improves, consumers have more disposable income that they can spend dining out. And given the diversity of price points of its offerings, DRI is competing for every dining dollar.

What’s more, its more upscale properties are likely to see a bump in holiday spending for couples, as well as for office parties, and there’s another interesting new niche that’s being created by online dating services. DRI properties are generally in busy areas that offer some level of safety if the date is disappointing … and dependable, quality food and surroundings, in case the date goes well.

Beyond that, DRI stock has taken another progressive step in its operations by spinning off its properties into a real estate investment trust (REIT), Four Corners Property Trust (FCPT). This now allows DRI to pay itself (essentially) rent for the properties and use the cash to more quickly retire its debt … a very smart move.

While DRI is only up 9% year-to-date, it also throws off a 3% dividend. That’s a solid 12% total return that certainly outpaces the major averages and comes on the heels of two massive restructuring projects.

And quite frankly, if you’re interested in a restaurant stock positioned for growth, DRI is a bargain and in a much better spot than iconic Chipotle (CMG).

So far this year, CMG has had three major incidents of E. coli food poisoning around the country, which is becoming troublesome for the high-flying brand. The stock is off 27% this year and is still trading with a price-to-earnings ratio near 30. Darden is trading with a P/E of 22 with a REIT spinoff, a recently announced $500 million stock buyback and no E. coli.

If you’re bullish on the rebound of the middle class, DRI is a great way to put those feelings into action.

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.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/darden-restaurant-stocks-dri-stock/.

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