Buy This, Not That: Restaurant Sector Roundup (BLMN, DRI, RT)

Earnings season is nearly upon us, and to prepare, I’m looking at companies that will be reporting in the next month. We often see sharp jumps, either upward or downward, after earnings are posted, but by looking at the company’s fundamentals ahead of time, we can get a good idea of which ones we’ll want to hold before an earnings spike.

Today, we’ll look at three restaurants that will dish out their first-quarter results in April: Bloomin’ Brands (BLMN), Ruby Tuesday (RT) and Darden Restaurants Inc. (DRI).

Which of these major restaurant chains is worth adding to your portfolio? Find out below.

Bloomin’ Brands Inc.

If you’ve eaten at Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill or Fleming’s Prime Steakhouse, you’ve been to a Bloomin’ Brands restaurant. And though many of these chains are known for having lines out the door, it seems that traffic has tapered off in recent months. BLMN will report its first quarter earnings on April 26, and analysts are expecting to see negative sales and earnings.

A year ago quarter, BLMN posted $1.2 billion in sales and earnings of 54 cents per share earnings. This quarter, analysts predict just $1.17 billion in sales and earnings of 50 cents per share.

The company offers a 1.7% dividend yield, which is decent, but its fundamentals do not paint the same picture. Its buying pressure and sales growth are especially weak, and this stock receives a Sell rating.

Ruby Tuesday, Inc.

Ruby Tuesday, a restaurant known for its unlimited salad bar, reports earnings on April 7. While this date is just a week away, I wouldn’t get too excited; analysts are predicting a mixed report. On the one hand, earnings are expected to improve from a loss of 1 cent per share a year ago to a profit of 6 cents per share this year. On the other hand, sales are expected to drop 0.6% this quarter to $284.14 million. Analysts also expect sales to stay stagnant through the end of fiscal year 2017.

RT does not offer a dividend, and its fundamental rankings are very middle-of-the road. I recommend that you hold this position, if you already own shares.

Darden Restaurants Inc.

The Darden Restaurants portfolio includes a number of well-known chains, including Olive Garden, Red Lobster and Longhorn Steakhouse. This company will be the first of the three in today’s post to report earnings–its report will be released on April 5. I also expect it to be the strongest report of the three.

Analysts expect earnings to increase to $1.19 per share from 99 cents per share a year ago. Sales figures are also expected to increase from $1.73 billion a year ago quarter to $1.84 billion this quarter.

Darden offers a healthy 3% dividend yield. It also has some great fundamental rankings working in its favor, including its return on equity and its operating margin growth. DRI receives a Buy rating.

To learn more about the strengths — and weaknesses — of other companies reporting earnings this month, I encourage you to continue to use Portfolio Grader. In the meantime, I’ll continue pointing out the major pitfalls — and opportunities — that will pop up this earnings season.

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