Seeking Alpha
Value
Profile| Send Message|
( followers)  

Darden Restaurants (DRI) is scheduled to report its 4th-quarter 2013 earnings on Friday, June 21st. Below I have highlighted this quarter's earnings estimates as well as provided a fundamental look at the company's financial position and valuation.

Profile and Estimates

Darden has a market cap of $6.82 billion and had annual sales last year of $7.999 billion. Shares currently trade for $52.52 and are up 19.03% YTD and 21.59% above their 52-week low of $43.21 per share.

DRI Chart

DRI data by YCharts

Analysts have a mean target price of $50.96 and a median price target of $52.00 on the shares. This quarter, analysts on average are expecting EPS of $1.04 on revenues of $2.26 billion.

Below is a valuation metrics that I have compiled based on next years EPS estimates and the company's 5YR P/E ratios.

(click to enlarge)

Based on this metric, DRI's current P/E ratio of 16.02 is close to the high side and puts its current price at a premium based on the low EPS estimate and with only an 11.5% upside based on the max earnings per share estimate and 5YR high P/E ratio.

Fundamental Analysis

(click to enlarge)

To get an idea of the inter-workings of the company, I have above a Three-Step Dupont Analysis that shows that while DRI's returns have been consistent, they have been helped mostly by increasing leverage and slightly hurt by a slowing asset turnover. The graph below displays the company's rising debt/equity ratio.

DRI Liabilities Chart

DRI Liabilities data by YCharts

This however is not alarming because the company has been slowly increasing its dividend payments and decreasing the company's share count. Both actions that have a negative effect on the equity and in-turn D/E ratio. Per Morningstar.com, the company's current D/E of 1.3 is higher than the industry averages 0.9 and DRI's ROE of 22.8 (and my DuPont ROE of 24.35) is below the industry averages 32.1.

DRI Shares Outstanding Chart

DRI Shares Outstanding data by YCharts

Bottom Line

Darden Restaurant's ROE analysis shows that the company's increased leverage has helped returns but is only elevated (as a percentage of equity) because of the company's shareholder returns. I expect this to continue and see room for improvement in the company's net and operating margins, both of which are close to half of their respective industry averages. Keep an eye out for earnings and new developments when the company reports its 4th quarter earnings on Friday.

Source: Darden Restaurants' Fourth Quarter Earnings Preview