Why Darden Restaurants (DRI) Stock Gained Today

NEW YORK (TheStreet) -- Darden Restaurants (DRI) shares closed trading up 0.9% to $47.75 on Tuesday after the company announced that it was nominating eight new directors to its board in what is seen as an appeasement of its largest shareholder Starboard Value LP.

The company nominated nine incumbent board members to the 12 seat board earlier this year, leaving three seats open for Starboard Value choices.

"Starboard is seeking effective control of the company, representation which is disproportionate to Starboard's approximate 8.8 (percent) stake in Darden," said Darden non-executive chairman Charles Ledsinger, "This slate avoids many of the risks and destabilization that would result from full board turnover and giving control to a single shareholder's nominees."

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Pressure from Starboard Value and other investing groups led to the company announcing that longtime CEO Clarence Otis would be stepping down in July.

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, reasonable valuation levels and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."

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

  • DRI's revenue growth has slightly outpaced the industry average of 5.5%. 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.
  • The gross profit margin for DARDEN RESTAURANTS INC is rather low; currently it is at 20.24%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.24% trails that of the industry average.
  • Net operating cash flow has significantly decreased to $103.40 million or 60.16% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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