Darden Restaurants (NYSE:DRI) started in Orlando, Florida in 1968. But today the empire has more than 1,700 restaurants across North America and more than 185,000 employees. It’s also the world’s largest full-service restaurant company. Even with DRI stock’s recent stumble, it easily earns a “buy” rating for my Growth Investor model portfolio.
If you’re not familiar with the name Darden, there’s little doubt you know some of the restaurants it owns — Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, Yard House, Cheddar’s Scratch Kitchen, The Capital Grille and Eddie V’s Prime Seafood. The latter two are its fine dining operations: Both are luxe steakhouses usually in larger urban areas.
Darden also owned Red Lobster until 2014 when it spun it off. And in 2017, it added Cheddar’s to its family.
Darden’s Long History
There was a lot of controversy when DRI decided to sell Red Lobster. One of the major investors was a hedge fund that was rallying to keep the seafood chain in the company — but management sold it to a private equity firm anyway.
Since the sale, the DRI stock is up more than 150%, so it’s hard to argue that it was a bad move. At Growth Investor, we consider it a High-Growth Investment, given this great momentum as well as its strong fundamentals.
Most of DRI’s revenue — it brought in about $8.5 billion in revenue last year — is derived from its more casual restaurants, particularly its flagships Olive Garden and LongHorn Steakhouse. The duo make up 72% of DRI sales.
In its recent fiscal first-quarter results on Sept. 19, there was some good news and some bad news.
Remember, DRI is one of the best representatives of the health of the U.S. consumer. These full-service casual restaurants are one of the best indicators of how well the U.S. consumer is doing.
If revenue and same-store sales are rising, it means consumers are still in good enough shape to make it out to eat a little more often. If they’re shrinking, the consumer is cutting back on spending. It’s a key factor in my market-beating stock strategy.
The Bottom Line on DRI Stock
Fortunately for Darden, its core brands continue to do well. And DRI maintained its guidance for the rest of the fiscal year. That’s a good sign since it reported for Q3 before most other restaurant stocks. This is a good indicator that DRI is still bullish on the economy.
And DRI is famous for keeping a pulse on the consumer. Plus, it has beat earnings for 18 consecutive quarters now and authorized another $500 million share buyback program to ensure earnings growth stays on track.
The downsides in the report were in its higher-end restaurants: Eddie V’s and The Capital Grille. Cheddar’s same-store sales were off 5.4% compared to an expected loss of just 1.6%.
The issue with Cheddar’s may just be a challenge in incorporating the brand into the Darden family. And the upscale restaurants’ weakness could just be a seasonal issue.
Either way, as long as its big brands keep expanding, all is good.
My Portfolio Grader rates DRI stock a “B” right now. If the fundamentals clear up and there’s better visibility about the U.S. consumer, it would certainly raise its grade even higher.
And DRI stock’s 3.1% dividend also helps long-term growth investors.
Why Dividend Growth Stocks Are Especially Important Today
These days, the global bond market is just going haywire: We’ve got falling and even negative yields overseas. But as investors retreat to U.S. Treasurys it’s causing bizarre effects here, too. Just look at what happened this summer, when the two-year Treasury actually began to yield MORE than the 10-year Treasury.
And even the 30-year Treasury can’t be relied upon for good yield anymore. In August, its yield dropped below 2% for the first time ever.
So — whether you’re managing big institutional cash, or your own portfolio — you’ll also want to look at the group of stocks I’ve nicknamed the Money Magnets.
Not only did these stocks earn an “A” in my Portfolio Grader, thanks to strong buying pressure and great fundamentals …
The stocks also earn an “A” in my Dividend Grader. These stocks are able to pay great yields — and have the strong business model to back it up.
All in all, I’ve got 27 strong dividend growth stocks for you now, and one more coming, in Growth Investor … almost all of which yield more than the S&P 500. These stocks are poised to do well as we continue to see international capital flow to the U.S. markets. Click here to see how I found these stocks, and how you can get great performance out of YOUR portfolio — come what may.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.