Darden Restaurants, Inc. (DRI)

I went to Olive Garden on a Monday night two weeks ago and had to wait 30 minutes to get a table. I think DRI is a solid value play in a sector that is undervalued and poised to come up big with the recovery.

Passes Miller High Yield screen

Upthumb. Excellent cash flow. Good payout. Relatively low 5 year sales growth of 7%. Low quick ratio. Nominal debt ratio for a restaurant chain. Low margins - could be the source of improvement.

i would buy this one because everyone loves to eat out once in a while. no matter what the price is.

Restaurant industry has changed for the foreseeable future as a result of the decline in discretionary consumer income and over-capacity of restaurant outlets. Smaller and/or weaker concepts will be squeezed out of business and the strong operations will get stronger – DRI’s control over all restaurant operations (no franchisees) will keep the corporate focus on driving profitable transactions and squeezing inefficiencies out of the restaurant operations.

Average unit volume (AUV) at core concepts…

Red Lobster AUV is $3.8 million

Olive Garden AUV is 4.8 million

...far exceed that of competitors:

Applebees AUV is less than $2.5 million

Chili’s AUV is $3.2 million

TGI Fridays is approximately $3.5 million.

All of the brands operated by DRI will realize an increase in transactions as consumer confidence improves and unemployment declines. In an effort to limit the loss of transactions, the industry is experiencing pricing pressure from competitive value promotions (for example, Applebee's 2 for $20 meals). Red Lobster and Olive Garden same-store-sales declines of less than 5% (versus a decline of more than 5% for the industry) suggest DRI has a favorable value perception and an opportunity to increase the average check / improve its menu mix when consumers are not as price sensitive.

Through the acquisition of RARE Hospitality, DRI diversified into the segment that has been the most severely impacted by the recession, the steakhouse segment. The size of DRI’s advertising budget will position the DRI steakhouse concepts for a strong rebound when consumer sentiment improves. While waiting for the transactions to return, Longhorn Steakhouse and The Capital Grill will benefit from DRI’s best practices in operations, technology and purchasing power.

Finally, DRI has favorable funded debt and financing available at a time when the credit markets have all but dried up for restaurants. DRI’s capitalization remains sufficient to support ongoing capital improvements and buyback stock as well as entertain any opportunistic acquisition that may present itself.

With positive revenue growth in the second quarter, DRI is poised to outperform other restaurants. Taking a page from Peter Lynch, after recently visiting an Olive Garden, the tables are always full. Decent balance sheet.

fool

YUCK!!

Good company, gonna make money soon.

HaHaHa!!!!!! Strapped consumer, layoffs, higher oil and commodity prices - has been purely a momo play without NO REGARD to fundamentals.

GOOD EATS

Near 52 week high alot of competition in the restaurant industry.

The Olive Garden is the greatest restaurant concept in the history of the restaurant industry. They continue to increase sales and profits even in slow economies. I am a 15 year employee and see where we were and where we are going. We are optimistic.

Not in this economy.

Saw CEO on CNBC seemed like a nice guy.

A GOOD RESTARUNT COMPANY

Restaurants will suffer from major decrease in consumer discretionary spending.

dri is already returning to its' level of sept 08. fools do not wait on this-my daughter loves OLIVE GARDEN (AND I LOVE MY DAUGHTER)-it's just the 30/45 minute waits i don't like. great quality food at a price you can afford to take out 5 of her best college friends when they invade your home or you go visit them. i live in chicagoland area & these restrurants are always hopping/even during the holiday/new year seasons. fool on

I just feel these types of restaurants will not fare well in the coming months. also it is above its channel. Longer term this stock I feel will do well but for now it will have to drop 25% for me to consider purchasing. I am watching this stock but I am not very excited about it at the moment.