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Trade-Ideas: Darden Restaurants (DRI) Is Today's "Barbarian At The Gate" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Darden Restaurants ( DRI) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Darden Restaurants as such a stock due to the following factors:

  • DRI has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $108.7 million.
  • DRI has traded 1.4 million shares today.
  • DRI traded in a range 215.7% of the normal price range with a price range of $2.17.
  • DRI traded above its daily resistance level (quality: 19 days, meaning that the stock is crossing a resistance level set by the last 19 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock s movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in DRI with the Ticky from Trade-Ideas. See the FREE profile for DRI NOW at Trade-Ideas

More details on DRI:

Darden Restaurants, Inc. owns and operates full service restaurants in the United States and Canada. It operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's Prime Seafood, and Wildfish Seafood Grille brand names. The stock currently has a dividend yield of 4.7%. DRI has a PE ratio of 16.5. Currently there are 7 analysts that rate Darden Restaurants a buy, 1 analyst rates it a sell, and 16 rate it a hold.

The average volume for Darden Restaurants has been 1.4 million shares per day over the past 30 days. Darden has a market cap of $6.1 billion and is part of the services sector and leisure industry. The stock has a beta of 0.70 and a short float of 8.3% with 4.20 days to cover. Shares are up 3% year to date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Darden Restaurants as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:

  • DRI's revenue growth has slightly outpaced the industry average of 4.6%. Since the same quarter one year prior, revenues slightly increased by 6.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, DARDEN RESTAURANTS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The share price of DARDEN RESTAURANTS INC has not done very well: it is down 17.48% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • DARDEN RESTAURANTS INC's earnings per share declined by 37.6% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, DARDEN RESTAURANTS INC reported lower earnings of $3.14 versus $3.59 in the prior year. For the next year, the market is expecting a contraction of 7.6% in earnings ($2.90 versus $3.14).

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