NEW YORK (TheStreet) -- Shares of Darden Restaurants Inc. (DRI) are higher by 1.60% to $65.291 after KeyBanc Capital Markets increased its price target to $80 from $70, raised its fiscal 2016 earnings per share projection to $2.95 from $2.70, and maintained its "overweight" rating.
"We believe progress is occurring at Darden's restaurant operations, which should lead to further share appreciation; we raised our EPS and cash flow estimates to reflect our conviction," said KeyBanc analyst Christopher O'Cull. "Moreover, we believe additional value could be created with a tax-free spin-off of its real estate."
Since the board of directors was reconstituted in October 2014, the Orlando, FL-based full service restaurant company has made evaluating options for its real estate portfolio a priority, leading KeyBanc analysts to believe that there is a high probability that Darden Restaurants could announce plans to separate its real estate and non-real estate holdings over the next several months.
Following a spin-off of real estate, shareholder value is expected to be created by PropCo distributing at least 90% of its annual taxable income as dividends, pursuing additional real estate transactions to diversify its income base, and reducing its cost of capital from the business model and growth prospects associated with REIT status, according to KeyBanc analysts.
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. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat 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 7.5%. Since the same quarter one year prior, revenues slightly increased by 6.9%. Growth in the company's revenue appears to have helped boost the 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 22.0% when compared to the same quarter one year prior, going from $109.70 million to $133.80 million.
- Net operating cash flow has remained constant at $365.10 million with no significant change when compared to the same quarter last year. Along with maintaining stable cash flow from operations, the firm exceeded the industry average cash flow growth rate of -11.49%.
- The debt-to-equity ratio is somewhat low, currently at 0.68, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.37 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Powered by its strong earnings growth of 55.38% and other important driving factors, this stock has surged by 32.61% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: DRI Ratings Report