Darden Restaurants Earnings Preview

Darden Restaurants [[DRI]] is scheduled to report their fiscal first quarter 2010 results after the market closes on Tuesday, September 29th. Based on our analysis, we at EarningsPreviews.com are expecting DRI to report better than expected earnings results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $1.77 billion and EPS of $.68. This would represent a slight 1% increase in revenues from last year’s $1.77 billion in the same period. The current analyst consensus estimates calls for revenues of $1.79 billion and EPS of $.66. On June 23, the company provided full year guidance of $2.59 – $2.85 EPS.

 

Darden Restaurants has performed quite well in this current economic recession as sales grew 8% last quarter. While the company has not been immune to consumers eating out less frequently, they have maintained their growth be continuing to open new locations. The company’s Olive Garden and Red Lobster brands continue to draw in customers despite aggressive discounting offered by Darden’s competitors. We are expecting another solid quarter with revenues likely inline with Street consensus, but cost savings should deliver better than expected earnings results.

 

For fiscal year 2010, Wall Street is already expecting Darden to perform near the high-end of their initial guidance range. With an improving economic climate and rising consumer confidence, we believe it is likely that Darden will deliver results that exceed even the top-end of their initial earnings guidance range.  

 

Stock Performance

Since the beginning of 2009, Darden’s shares have gained 27% and have outperformed the 16% gain in the S&P 500 index. Last year, DRI’s stock actually gained 2% and easily outperformed the 38% drop in the S&P 500 index.

 

Valuation

Shares are now trading at 11.5x consensus 2011 EPS estimates. This is a discount to the relative valuations of their peer group. Darden’s shares are off 14% since hitting a 52-week high in April. We would expect that rising consensus expectations and further multiple expansion will lift this stock back above $40.

 

Recommendation: Buy with a $40 price target.

 

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