Thanks to lower gas prices and a strong jobs market, investor interest in the restaurant sector has been rekindled as of late. Companies in this space look
to benefit thanks to consumers having more discretionary income for food purchases, which looks to translate into higher levels of sales for many in this
business.
However, the restaurant industry is a cutthroat business with heavy competition. That is why you can’t just buy any company in this space to take advantage
of the trends, you need to look at the best-positioned companies in the business. One that is definitely worth a closer look right now is Darden
Restaurants (DRI).
DRI in Focus
Darden is the owner of a number of casual dining chains including Olive Garden, LongHorn Steakhouse, the Capital Grille, and the Yard House, just to name a
few. The company has more than 1,500 locations worldwide, though it has a focus on the American market.
The company has been in the process of executing a massive turnaround lately thanks to the sale of its Red Lobster brand and activist investor pressure.
The stock has been a strong performer over the past two years, beating out the broad markets and the consumer discretionary sector by a wide margin.
Part of this outperformance is definitely thanks to company changes, and a bit has to be due to the better economic situation in the country. While some
might be worried that these changes are already baked in to the company’s stock price, there are actually plenty of reasons to believe that a continued
surge is ahead for DRI, at least if we look to recent earnings estimate revisions.
Earnings Estimates
Recent analyst estimates for DRI earnings have been surging lately, as the analysts embrace a continued growth story for Darden. In fact, current quarter
EPS growth is expected to come in at 21% while the full year is looking to come in at just under 32%.
These lofty growth projections are largely thanks to a flurry of recent estimates to the upside, as analysts have been racing to boost their opinion of
Darden’s prospects this year. In the past sixty days, there have been 13 revisions higher for the current quarter compared to zero lower, and then the same
level for the full year too.
This has helped to boost the consensus estimate over the past two months by about 14 cents a share in the current quarter, a roughly 13% increase in just
the past two months alone. But investors shouldn’t worry about Darden living up to these lofty expectations, as the company has a great track record at
earnings season including an average beat of just under 20% in the past four quarters.
No wonder Darden currently has a Zacks Rank #1 (strong buy) and why we are looking for more outperformance from this security in the months ahead.
Bottom Line
Darden is in a strong industry that has the wind at its back thanks to the current economic situation. Plus, the restaurant segment of the retail industry
currently has a top 25% industry rank, so there is definitely promise for the group at large.
However, DRI may be among the best in this group thanks to its impressive growth rates, and continued turnaround. Analysts almost universally have been
raising estimates as of late and there is plenty of optimism for this stock in the near term. So, if you are looking for a potential pick in this surging
sector for the upcoming earnings season and beyond, definitely take a closer look at DRI soon.
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