Darden Restaurants (DRI) Stock Gains Today Following Analyst Upgrade

NEW YORK (TheStreet) -- Darden Restaurants (DRI) shares are up 1.56% to $55.16 in early market trading on Tuesday after the restaurant chain parent company's rating was raised to "buy" from "hold" by analysts at KeyBanc today.

The firm believes that Olive Garden's new menu revamp will help reverse the decline in sales the restaurant chain has suffered and will help put the company back on track within the next 12 months.

"We do not believe a national restaurant chain that serves 5K guests/store/week is 'broken' but was poorly managed by the previous CEO and COO," said analysts at the firm.

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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 compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and poor profit margins."

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

  • The revenue growth came in higher than the industry average of 9.7%. Since the same quarter one year prior, revenues slightly increased by 4.2%. 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 616.8% when compared to the same quarter one year prior, rising from $70.20 million to $503.20 million.
  • DARDEN RESTAURANTS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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 ($2.26 versus $1.38).
  • Net operating cash flow has significantly decreased to $44.60 million or 79.44% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • 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. In comparison to the other companies in the Hotels, Restaurants & Leisure industry and the overall market, DARDEN RESTAURANTS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • You can view the full analysis from the report here: DRI Ratings Report
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