Darden Restaurants, Inc. (DRI) recently provided a lower-than-expected fiscal 2022 earnings guidance, primarily due to increased labor costs. The stock has lost 4.9% over the past month to close yesterday’s trading session at $139.83. In addition, it is currently trading 14.9% below its 52-week high of $164.28, which it hit on September 23, 2021. 

However, it reported impressive fiscal second-quarter results, beating Wall Street estimates. The revenue and EPS for the quarter came in at $2.27 billion and $1.48, which beat the estimates by 1.8% and 3.5%, respectively. Also, its board of directors repurchased 1.80 million shares of its common stock worth approximately $266 million in the fiscal second quarter and declared a quarterly cash dividend of $1.10 per share. Moreover, the company expects to open 35-40 new restaurants for fiscal 2022. So, the stock’s near-term prospects look bright.

Here’s what I think could influence DRI’s performance in the upcoming months:

Robust Financials

DRI’s total sales increased 37% year-over-year to $2.27 billion in the second quarter, which ended November 28, 2021. The company’s operating income grew 101.2% year-over-year to $242.90 million, while its net earnings came in at $193.20 million, representing a 101.3% year-over-year increase. Also, its EPS came in at $1.48, up 102.7% year-over-year.

Favorable Analyst Estimates

For fiscal 2022, analysts expect DRI’s EPS and revenue to grow 77.5% and 33.9% year-over-year to $7.65 and $9.64 billion, respectively. In addition, its EPS is expected to grow at 30% per annum over the next five years. Moreover, Wall Street analysts expect the stock to hit $170.32 in the near term, indicating a potential upside of 21.8%.

High Profitability

In terms of trailing-12-month net income margin, DRI’s 10.72% is 63.4% higher than the industry average of 6.56%. Likewise, its trailing-12-month CAPEX/Sales of 3.73% is 48.9% higher than the industry average of 2.50%. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 36.95%, 8.03%, and 8.86% are higher than the industry averages of 17.23%, 7.56%, and 5.94%, respectively.

POWR Ratings Show Promise

DRI has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. Out of these categories, DRI has a B grade for Quality, in sync with its higher-than-industry profitability ratios.

DRI also has a C grade for Growth, consistent with its revenue and earnings growth estimates. In addition, the stock has a C grade for Momentum, consistent with its 17.9% gains over the past year and 17.4% returns year-to-date.

Beyond what I have stated above, we have also given DRI grades for Value, Stability, and Sentiment. Get all the DRI ratings here.

DRI is ranked #15 out of 46 stocks in the B-rated Restaurants industry.

Bottom Line

DRI reported impressive fiscal second-quarter results despite rising COVID-19 cases and labor and supply shortages. It is well-positioned to benefit from the strong demand. So, it could be wise to buy the dip in the stock.

How Does Darden Restaurants (DRI) Stack Up Against its Peers?

DRI has an overall POWR Rating of B. You could also check out these other stocks within the Restaurants industry with an A (Strong Buy) or B (Buy) rating: Good Times Restaurants Inc. (GTIM), Nathan’s Famous, Inc. (NATH), and Noodles & Company (NDLS).

DRI shares were trading at $137.37 per share on Monday afternoon, down $2.46 (-1.76%). Year-to-date, DRI has gained 18.07%, versus a 22.59% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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