This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Darden Restaurants (DRI) Stock Is Lower Today

Stocks in this article: DRI

NEW YORK (TheStreet) -- Darden Restaurants (DRI) stock is lower Friday after announcing it will sell seafood chain Red Lobster to private equity firm Golden Gate Capital in a deal worth $2.1 billion. 

This comes despite warnings from activist investors including Starboard Value and Barington Capital that a sale would curtail shareholder value. 

By midafternoon, shares had tumbled 3.1% to $49.12.

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

Red Lobster, one of its more mature brands, has been struggling in recent times, undercut by competition from fast-casual restaurants such as Chipotle (CMG). However, though same-restaurant sales have fallen, Red Lobster still accounts for nearly a third of Darden's total annual revenue.

The deal, expected to close in the first quarter of 2015, will generate net proceeds of $1.6 billion, portions of which will be used to pay back debt and for share buyback programs.

TheStreet Ratings team rates DARDEN RESTAURANTS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate DARDEN RESTAURANTS INC (DRI) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.8%. Since the same quarter one year prior, revenues slightly dropped by 1.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, DRI has underperformed the S&P 500 Index, declining 7.38% from its price level of one year ago. 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.
  • 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.
  • Net operating cash flow has decreased to $363.70 million or 13.87% when compared to the same quarter last year. Despite a decrease in cash flow of 13.87%, DARDEN RESTAURANTS INC is in line with the industry average cash flow growth rate of -22.05%.

Must read: Warren Buffett's 10 Favorite Growth Stocks

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

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,614.81 +215.14 1.31%
S&P 500 1,941.28 +37.27 1.96%
NASDAQ 4,419.4780 +103.4040 2.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs