How Will Darden Restaurants (DRI) Stock React After Completing Its Red Lobster Sale?

NEW YORK (TheStreet) -- Darden Restaurants Inc. (DRI) announced on Monday that it has completed the sale of its Red Lobster restaurant chain to the privately owned Golden Gate Capital, for $2.1 billion in cash.

By selling its Red Lobster unit Darden says it can now focus on its "Olive Garden brand renaissance program and preserving its dividend." 

Shares of Darden Restaurants are up 0.78% to $45.01 on Monday afternoon.

Must Read: Warren Buffett's 25 Favorite Stocks

 

Separately, TheStreet Ratings team rates DARDEN RESTAURANTS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate DARDEN RESTAURANTS INC (DRI) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

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

  • The revenue growth came in higher than the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 3.6%. 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.
  • DARDEN RESTAURANTS INC's earnings per share declined by 39.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, DARDEN RESTAURANTS INC reported lower earnings of $1.38 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.25 versus $1.38).
  • The debt-to-equity ratio of 1.28 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.11, which clearly demonstrates the inability to cover short-term cash needs.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, DARDEN RESTAURANTS INC's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: DRI Ratings Report
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