Darden Restaurants Earnings Preview

eChristian Investing submits:Darden Restaurants (DRI) is scheduled to report their fiscal third quarter 2010 results after the market closes on Tuesday, March 23rd. Darden is expected to report better than expected quarterly results that exceed Wall Street’s consensus expectations. Analyst ExpectationsWe are forecasting revenues of $1.86 billion and EPS of $.93. This would represent a 3% increase in revenues from last year’s $1.80 billion in the same period. The current analyst consensus estimates calls for revenues of $1.85 billion and EPS of $.92. On February 16, the company provided updated quarterly guidance of $.91 - $.93 EPS and y/y growth in blended same-store-sales of (0.5%) - 0.5%. Earnings AnalysisDarden Restaurants appears to be having a very strong quarter and their updated earnings guidance last month was considerably above Wall Street’s consensus estimates. Our checks show that weekend visitor traffic has been very strong in 2010. Consumers may be reducing their spending, but are still willing to splurge on a visit to Red Lobster or Olive Garden. Darden is guiding for earnings growth of 5 – 8% in fiscal year 2010. These guidance numbers are likely too conservative given the positive consumer traffic trends that we are seeing. It’s also important to recognize that Darden’s traffic improvements are not being driven by pricing promotions which will result in stronger bottom-line results. Stock PerformanceIn 2009, Darden Restaurant shares gained 24% for the full year. The stock has been trending steadily higher since last November and is up 24% since the beginning of 2010. ValuationDarden Restaurants is now trading at 14x consensus 2011 EPS estimates. This is a discount to the relative valuations of their peer group. Darden stock has already had a very nice run over the last few weeks, so we wouldn’t expect a huge lift following their earnings release. However, the stock is still attractively valued and has additional upside opportunity as the economy returns to strength. Recommendation: Buy with an $47 price targetDisclosure: No positionsComplete Story »