Darden Restaurants Inc Valuation – February 2017 $DRI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Darden Restaurants Inc (DRI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Darden Restaurants, Inc. is a full-service restaurant company. The Company owned and operated 1,536 restaurants through its subsidiaries in the United States and Canada, as of May 29, 2016. The Company’s segments include Olive Garden, LongHorn Steakhouse, Fine Dining (which includes The Capital Grille, and Eddie V’s Prime Seafood and Wildfish Seafood Grille (Eddie V’s)) and Other Business (which includes Yard House, Seasons 52, Bahama Breeze, consumer-packaged goods and franchise revenues). As of May 29, 2016, the Company also had 50 restaurants operated by independent third parties pursuant to area development and franchise agreements. Olive Garden’s menu includes a range of authentic Italian foods featuring fresh ingredients and a selection of imported Italian wines. LongHorn Steakhouse restaurants feature a range of menu items, including fresh steaks and chicken, as well as salmon, shrimp, ribs, pork chops, burgers and prime rib.

DRI Chart

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of DRI – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,843,423,843 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.59 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 50.19% Pass
6. Moderate PEmg Ratio PEmg < 20 19.81 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.84 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.59 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -0.94 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $3.62
MG Growth Estimate 1.83%
MG Value $44.06
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $52.53
MG Value based on 0% Growth $30.79
Market Implied Growth Rate 5.66%
Current Price $71.77
% of Intrinsic Value 162.91%

Darden Restaurants, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.23 in 2013 to an estimated $3.62 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.66% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Darden Restaurants, Inc. revealed the company was trading above its Graham Number of $35.63. The company pays a dividend of $2.12 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.81, which was below the industry average of 31.3, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.41.

Darden Restaurants, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.41
Graham Number $35.63
PEmg 19.81
Current Ratio 0.59
PB Ratio 4.84
Current Dividend $2.12
Dividend Yield 2.95%
Number of Consecutive Years of Dividend Growth 1


Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2016
Total Current Assets $683,400,000
Total Current Liabilities $1,151,300,000
Long-Term Debt $440,500,000
Total Assets $4,461,900,000
Intangible Assets $1,447,500,000
Total Liabilities $2,608,500,000
Shares Outstanding (Diluted Average) 124,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.78
May2016 $2.90
May2015 $5.47
May2014 $2.15
May2013 $3.13
May2012 $3.57
May2011 $3.39
May2010 $2.84
May2009 $2.65
May2008 $2.60
May2007 $1.35
May2006 $2.16
May2005 $1.78
May2004 $1.34
May2003 $1.27
May2002 $1.30
May2001 $1.06
May2000 $0.89
May1999 $0.66
May1998 $0.45
May1997 -$0.39

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.62
May2016 $3.51
May2015 $3.72
May2014 $2.91
May2013 $3.23
May2012 $3.19
May2011 $2.85
May2010 $2.50
May2009 $2.25
May2008 $1.99
May2007 $1.65
May2006 $1.72
May2005 $1.45
May2004 $1.25
May2003 $1.15
May2002 $1.01
May2001 $0.76

Recommended Reading:

Other ModernGraham posts about the company

Darden Restaurants Inc. Analysis – September 2015 Update $DRI
5 Speculative and Overvalued Companies to Avoid – October 2014
17 Companies in the Spotlight This Week – 9/27/2014
Darden Restaurants Inc. Annual Valuation – 2014 $DRI

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






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