Americans still love fast food, but they're increasingly opting for quick and easy meals that are gussied up as sit-down restaurant fare. Hence the increasing popularity of "fast casual," which essentially entails fast food with cutlery, linen napkins, and wait staff.
The Great Recession of 2008-2009 traumatized an entire generation of middle-class consumers. Now that unemployment is falling and the economy is expanding, average consumers are feeling wealthy enough to dine out again, but memories of the worst downturn since the Great Depression have made them lastingly frugal. For a night out with the family, fast casual occupies the middle ground between a fancy, expensive indulgence and the same old processed food in a greasy bag.
Chipotle Mexican Grill (CMG - Get Report) in recent years rode this trend to become a Wall Street darling, until an E. Coli epidemic at its eateries took the wind out of its stock. Despite CMG's efforts to turn itself around, the verdict is still out as to whether this Tex-Mex fast casual chain can ever return to its former glory.
Stepping into the vacuum left by Chipotle is Darden, a restaurant "value play" that should enjoy earnings growth momentum in 2017.
With a market cap of $9.52 billion, Florida-based Darden Restaurants owns and operates 1,536 restaurants, including 843 Olive Garden, 481 LongHorn Steakhouse, 54 The Capital Grille, 65 Yard House, 40 Seasons 52, 37 Bahama Breeze and 16 Eddie V's restaurants.
The company is scheduled to report quarterly operating results Tuesday, March 28. The Wall Street consensus for earnings per share is $1.28, compared to $1.21 in the same quarter last year.
Darden's restaurants have carved out their own distinct niche. They're full-service but not too formal, a category that's in the social comfort zone of the suburban, SUV-driving public. The company still offers the burgers-and-fries that most consumers crave, but its menus encompass a wide variety of fare. Darden also has been co-opting the trend toward healthier eating by conspicuously removing trans-fats and other unhealthy ingredients from its meals.
With a trailing 12-month price-to-earnings (P/E) ratio of 22.47, DRI is cheaper than the trailing P/E of rivals Chipotle (537.69), Texas Roadhouse (TXRH - Get Report) (26.71), Panera (PNRA) (40.37) and the industry (38.6). Over the last 12 months, Chipotle's stock has plunged 13%, whereas Darden's has risen 15.41%, with more upside ahead.
The average analyst expectation is that Darden will rack up year-over-year earnings growth of 5.8% in the current quarter, 4.5% in the next quarter, 11.6% in the current year, 9.6% next year, and 11.86% over the next five years on an annualized basis.
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