Darden Restaurants, Inc. (DRI), An Investment Entree?

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How does Red Lobster sound for date night? Well, Darden Restaurants, Inc. (NYSE:DRI) thought $2.1 billion sounded better than lobster for dinner.

Darden Restaurants in the News

On Friday, Darden Restaurants, Inc. (NYSE:DRI) sold one of their popular seafood dining chains, Red Lobster, to San Francisco based private equity firm Golden Gate Capital. Red Lobster used to be Darden’s core business, but since the recession, Red Lobster has struggled to recover its customer base. Darden’s chief executive, Clarence Otis, argued in favor of the sale saying, “I think this maximizes value and minimizes risk. It’s highly value creating.” The company will use the immediate cash from the sale to pay off debt, and the new business strategy will focus on strengthening their Italian eatery, Olive Garden.

An Analyst Perspective

Janney Montgomery Scott analyst Mark Kalinowski recommended BUY Darden Restaurants, Inc. (NYSE:DRI), but still admitted the company is struggling. Kalinowksi noted that, “business trends remain lousy, and the ability of activists to generate meaningful change appears to have taken a hit.” With meat, grain and fuel costs on the rise, it might even be hard to turn things around at Olive Garden. However, Kalinowski also argued that “for patient investors, Darden’s 4.4% dividend yield is attractive.” Kalinowksi maintains his BUY rating and his $54.00 price target. Kalinowski has a 7.0% average return on the stock.

Mark Kalinowski’s Past Recommendations        

Kalinowski’s past Darden recommendations helped him earn his strong average return of +7.0% on the stock.

One of these successful recommendations was his BUY Darden Restaurants, Inc. (NYSE:DRI) recommendation from March 22 of this year. He reiterated his BUY rating, seeing potential in Olive Garden. Kalinowski noted, “the low point for same-store sales (blended for these three chains). Fiscal Q3 blended [sales] comps were off by -4.6%. Our fiscal Q4 blended comp projection remains at -2.1%. Our sources inform us that casual dining sector same-store sales to start off March were meaningfully better than the mid-single digit decline which plagued February.” Since this recommendation, the stock has gone from $47.00 to $48.49.

In addition to his success with Darden, Kalinowski has also seen a strong average returns from his McDonald’s Corporation (NYSE:MCD) recommendations and Papa John’s Int’l, Inc. (NASDAQ:PZZA) recommendations, helping him earn an overall +5.8% average return per recommendation and a 66% success rate recommending stocks.

Earlier this year in January, Kalinowsky recommended HOLD McDonald’s Corporation (NYSE:MCD), noting that the company might have a tough time meeting Street expectations. Kalinowski noted that, “if the company’s results match, or fall below, average expectations, it will be tough for its stock to significantly outperform that other fast food companies or the overall market.” Kalinowski has earned an average return of +5.8% on the stock.

On October 23 of last year, Kalinowski upgraded his rating on Papa John’s Int’l, Inc. (NASDAQ:PZZA) from HOLD to BUY, noting the increase in digital ordering. Kalinowski noted, “this industry shift toward digital  ordering favors national chains, which have more resources, than smaller, regional chains.” And, with food costs projected to ease in 2014, Kalinowski said that he, “expects same-store sales to improve.” This recommendation helped Kalinowski earn an average return of +9.6% on the stock.

However, not all of Kalinowksi’s restaurant recommendations have earned him strong returns. In March, Kalinowski reiterated his BUY rating on Krispy Kreme Doughnuts (NYSE:KKD). The stock was climbing after the company lifted its 2015 earnings forecast, anticipating fiscal 2015 adjusted earnings between 73 and 79 cents per share. Krispy Kreme also announced that they were increasing authorization to buy back more shares, from $50 million to $80 million. Because of this buyback news, Kalinowski kept his BUY rating, however the stock has since dropped from $20.11 to $18.47. Kalinowski has an average return of -6.5% on the stock.

Darden Restaurants, Inc. (NYSE:DRI) might be getting rid of their fish tank, but hungry investors will have to wait and see if this deal will put Darden back on the menu.

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