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Why Are Investors Confident about Darden before Fiscal 2Q17?

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Dec. 16 2016, Published 2:59 p.m. ET

Darden Restaurants

Darden Restaurants (DRI) is set to announce its fiscal 2Q17 earnings before the market opens on December 20, 2016. Darden is a Florida-based multibrand restaurant that operates Olive Garden, LongHorn Steakhouse, The Capital Grille, Eddie V’s Prime Seafood, Bahama Breeze, Seasons 52, and Yard House.

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Stock performance

Since the announcement of Darden’s fiscal 1Q17 earnings on October 4, 2016, the company’s stock price has risen 23.5%. The better-than-expected fiscal 1Q17 earnings and the victory of Donald Trump as the next president of the United States have contributed to the rise in Darden stock. Investors expect Trump to loosen regulations, which could be beneficial to restaurant chains.

In fiscal 1Q17, analysts were expecting the company to post adjusted EPS (earnings per share) of $0.82 on revenue of $1.72 billion. The company posted adjusted EPS of $0.88 on overall revenue of $1.71 billion.

After strong fiscal 1Q17 earnings and the approval of a new $500.0 million share repurchase program, the company raised its EPS guidance for fiscal 2017 to $3.87–$3.97 from $3.80–$3.90. That could have increased investor confidence, leading to a rise in Darden’s share price.

Year-to-date performance

Since the beginning of fiscal 2Q16, Darden has risen 20.7%. During the same period, peers Texas Roadhouse (TXRH), Brinker International (EAT), and Bloomin’ Brands (BLMN) have risen 38.8%, 8.4%, and 13.2%, respectively.

The broader comparative index, the Consumer Discretionary Select Sector SPDR ETF (XLY), has risen 8.8% year-to-date. XLY invests more than 9.7% of its holdings in restaurant and travel companies.

Series overview

With Darden’s fiscal 2Q17 results just around the corner, this pre-earnings series will focus on what to expect from its earnings release. We’ll cover analysts’ estimates for the company’s revenue and earnings per share. To wrap up, we’ll look at the company’s valuation multiple and expected stock price over the next 12 months.

Let’s start by looking at Darden’s fiscal 2Q17 revenue estimates.

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