NEW YORK (TheStreet) -- Darden Restaurants (DRI) -- the parent company of Olive Garden, LongHorn Steakhouse, Bahama Breeze and The Capital Grille -- has become a momentum stock after it had been bound in a two-year trading range. With that in mind, investors should trade the shares employing exit strategies. Here's the backdrop.
The company had missed or just matched analysts' earnings-per-share estimates since the quarter ended in May 2013. That resulted in a trading range from a high of $55.25 on June 10, 2013 to a low of $44.78 on Sept. 23, 2013. The stock ended 2013 at $54.37.
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For Darden, 2014 was a year of cost cutting. That included a deal announced in May to sell Red Lobster to Golden Gate Capital for $2.1 billion. Darden, though, still reported lower-than-expected earnings in June, and the stock declined to a two-year low at $43.56 on July 17. Then, the stock began a momentum run of 35% to an all-time intraday high at $58.90 on Dec. 8.
Darden is scheduled to report its latest quarterly results before the opening bell on Tuesday. Analysts estimate the company will post earnings 27 cents a share, along with lower revenue. With Darden still on a cost-cutting diet, the stock's momentum could be in jeopardy. Fewer free breadsticks at Olive Garden and competition from fast-casual chains such as high-flying Chipotle Mexican Grill (CMG) should encourage investors in Darden to consider an exit strategy.
Investors who are looking to buy Darden ($57.38) on weakness should enter a good 'til canceled limit order to buy at key technical levels of $48.40 and $44.50, while investors who are looking to sell should enter a good 'til canceled limit order to sell on strength at a key technical level of $59.15. Another exit strategy is to place a sell-stop order below the key weekly moving average of $55.03, while keeping in mind that this average will be rising each week.
Here's the daily chart for Darden.
Courtesy of MetaStock Xenith
The daily chart for Darden shows the rebound of 35% from the July 17 low at $43.56 to the Dec. 8 all-time intraday high at $58.90. The momentum journey solidified when the stock held its 200-day simple moving average (green line) at $48.87 on Oct. 31. The moving average is now at $49.81.