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Think F.A.S.T.: Darden Restaurants Inc. (DRI) After a Big Price Drop Has Become a Low Cost Feast

Julie C - Tuesday, December 06, 2011

The stock market often behaves in very peculiar ways. After announcing a modest reduction in revenues and earnings for fiscal 2012, attributed mostly to modest weakness with their Olive Garden Italian restaurant concept, Darden Restaurants, Inc.’s (DRI) is off over 11% today in active trading. We believe this is an overreaction that has created an excellent buying opportunity for the conservative long-term investors seeking capital appreciation and an increasing dividend income stream.

Darden Restaurants Inc. (DRI) is the world’s largest full-service restaurant company. Since the first Red Lobster Restaurant opened in Lakeland, Florida in 1968, Darden Restaurants experienced dramatic growth and now operates over 1900 restaurants under the leading full-service brands: Red Lobster, Olive Garden, and Longhorn Steakhouse. Darden’s specialty restaurant group includes The Capital Grille, Bahama Breeze, Seasons 52 and the recent acquisition of Eddie V’s Prime Seafood and Wildfish Seafood Grille restaurant brands.

In May of 1995 Darden Restaurants became a publicly traded company after General Mills spun it off to shareholders.  Since that time Darden Restaurants Inc. has achieved an excellent record of earnings growth which has rewarded shareholders on a total return basis far in excess of the average common stock. In addition to above-average capital appreciation, Darden Restaurants instituted a much more generous dividend policy to further reward shareholders beginning in calendar year 2005. Consequently, Darden has become a strong dividend growth stock.

Management is addressing the issues and has committed to making modifications and investments that they expect will re-establish Olive Garden’s historical value advantage. Therefore, they have expressed confidence in the long-term viability and resurgence in growth of not only Olive Garden, but also with their other restaurant concepts as follows:

"We're confident these investments will help Olive Garden get back on track, and we're well positioned to make them," said Otis. "Olive Garden continues to be a value leader and has a strong business model. Further, there's good momentum at our other brands and there's likely to be considerably less cost inflation during the remainder of this fiscal year compared to prior year as costs stabilize at current levels. In addition, our cash flow remains strong and we're continuing to make progress on four key transformative cost reduction projects. These are reasons why, even with the challenges at Olive Garden, we look forward to achieving solid earnings growth in the second half of this fiscal year and beyond."

The following Think F.A.S.T. video through the lens of F.A.S.T. Graphs™ on Darden Restaurants, Inc. (DRI) illuminates the opportunity, by the numbers, after adjusting earnings under Darden’s new guidance.

Conclusions

It’s an undeniable fact that the stock market is not always rational or efficient.  Ben Graham taught us this with his sage words: “In the short run the market is a voting machine, but in the long run it’s a weighing machine.” With these words, Mr. Graham is telling us that short-term volatility is often the result of the emotional reaction of investors voting with their dollars. However, in the long run the true value, or the weight of the business, will inevitably be reflected in its stock price.  We believe Darden Restaurants Inc. (DRI) is a terrific business that today’s market reaction has put on sale.

Disclosure:  No position at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

 



 


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    Testimonials


    “I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


    “When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

    (Wish I could be) Long FAST Graphs!!!”


    “One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


    “I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


    “Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


    “Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


    “About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


    "Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


    “If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


    “I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


    "Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


    "Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


    “Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


    “I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


    “I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


    “I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


    “Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


    “Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


    “Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


    ”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


    “Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


    “Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”