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Will Darden Outperform Analysts’ EPS Estimates in Fiscal 1Q18?

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EPS estimates

In fiscal 1Q18, analysts expect Darden Restaurants (DRI) to post EPS (earnings per share) of $0.99, which represents 12.5% growth from $0.88 in fiscal 1Q17.

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EPS growth

The revenue growth, EBIT margin expansion, lower effective tax rate, and share repurchases are expected to drive Darden’s fiscal 1Q18 EPS. Since the beginning of fiscal 2Q17 to the end of fiscal 4Q17, the company purchased shares worth $34.6 million. By the end of fiscal 4Q17, the company had $469.8 million under its share repurchase program. Share repurchases drive the company’s EPS by lowering the number of outstanding shares. Analysts expect the company’s effective tax to be at 25.9%—compared to 26.6% in fiscal 1Q17.

From the above graph, you can see that in the last four quarters, Darden outperformed analysts’ earnings estimates three times. When this happens, the company’s stock price tends to rise.

Peer comparisons and outlook

During the same period, Texas Roadhouse (TXRH) posted EPS growth of 12.8%, while Brinker International (EAT) and Bloomin’ Brands’ (BLMN) EPS fell 12.1% and 6.7%, respectively.

The company’s management has set the 2018 EPS guidance at $4.38–$4.50. Analysts expect the company to post EPS of $4.47 in fiscal 2018—growth of 11.2% from $4.02 in fiscal 2016.

Dividends

In fiscal 4Q17, Darden raised its dividends 12.5% to $0.63. The company paid its dividends at a yield of 3.0% and at a payout ratio of 56.6%. During fiscal 2018, analysts expect Darden to pay dividends of $2.44—growth of 5.6% from $2.31 in fiscal 2017.

In the next part, we’ll discuss Darden’s valuation multiple.

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