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Why Investors Are Optimistic about Darden’s Fiscal 2Q18 Earnings

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Stock performance

Darden Restaurants (DRI) is scheduled to announce its fiscal 2Q18 earnings before the market opens on December 19, 2017. The company owns Olive Garden, LongHorn Steakhouse, the Capital Grille, Eddie V’s, Bahama Breeze, Seasons 52, Cheddar’s Scratch Kitchen, and Yard House brands.

In fiscal 2Q18, Darden posted a systemwide SSSG (same-store sales growth) of 1.7% against analysts’ estimate of 2.1%, which led to a decline in its stock price. However, the expectation of a decline in corporate taxes due to proposed tax reforms appears to have increased investor confidence, leading to a rise in Darden’s stock price. The GOP tax bill proposes to lower the maximum corporate tax to 20% from 35%. As of December 12, 2017, Darden was trading at $87.14, which represents growth of 4.8% since the announcement of fiscal 2Q18 earnings on September 26, 2017.

Year-to-date performance

2017 has been a good year for Darden. Since the beginning of 2017, the company’s stock price has risen 19.8%. During the same period, peers Bloomin’ Brands (BLMN), Brinker International (EAT), and Texas Roadhouse (TXRH) have returned 18.5%, -22.5%, and 5.6%, respectively.

The iShares Dow Jones Select Dividend ETF (DVY) and the S&P 500 Index (SPX) have returned 11.5% and 19.0%, respectively. DVY has invested 37.7% of its holdings in restaurants and travel companies.

Series overview

With Darden’s fiscal 2Q18 earnings around the corner, we’ll look at analysts’ revenue and EPS expectations. Also, we’ll look at the management’s guidance for fiscal 2018 and analysts’ expectations for the next four quarters. In the end, we’ll look at the company’s valuation multiple and analysts’ recommendations.

In the next article, we’ll look at analysts’ revenue expectations for fiscal 2Q18.

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