5 Reasons Why Darden Can Continue To Rally

| About: Darden Restaurants, (DRI)

Shares of restaurant operator Darden Restaurants Inc (NYSE:DRI) are up more than 15% so far in 2012. There are five reasons why DRI can continue to rally.

DRI ChartDRI data by YCharts

Options Activity

Option Monster reported on the high level of bullish options activity recently; 6,000 July 55 calls were purchased while 6,000 July 47 puts were sold. Volume exceeded open interest at both strikes. Additionally, 6,000 July 60 calls were purchased in a separate trade. The trades appear to be a bet that earnings, scheduled to be reported on June 22, will beat expectations. Both trades will benefit if DRI move higher. The large trades likely represent institutional money. Institutional money is usually smarter, thus worth following. In summary, the recent options activity points to upside ahead for DRI over the short-term.


Currently, DRI pays an annual dividend of 3.33% or $1.72 per share. This dividend yield is impressive considering the current yield on the 10-year U.S. Treasury note. As shown by the quarterly dividend history chart below, DRI has shown a willingness to increase the dividend over time.

DRI Dividend ChartDRI Dividend data by YCharts

Decrease In Gas Prices

As shown by the chart below, gasoline prices have plunged in recent weeks. This is bullish for DRI as consumers will have more spending money and thus be more likely to eat out.

RBOB Gasoline Futures Contract 1 (Daily) ChartRBOB Gasoline Futures Contract 1 (Daily) data by YCharts

Short Interest

Short interest in DRI currently stands at 10.3 million shares, or 8% of the float. This significant short interest represents the possibility for a squeeze higher on any positive news. Short sellers are likely already starting to feel pressure to cover. As some short sellers begin to cover, it will only cause more pain for other short sellers.

Domestic Play

DRI is a mostly domestic play as the majority of its restaurants are in the U.S. More importantly, while the company does have some restaurants in Canada, DRI has no operations in Europe. This means that DRI has little exposure to the problems in Europe. Investors looking for ways to invest without exposure to Europe should consider DRI.


While DRI is off to a good start so far in 2012, there are five reasons why the stock can continue to rally. The bullish options activity, solid dividend, decrease in gas prices, high short interest, and lack of European exposure are all reasons why DRI can continue to rally.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DRI over the next 72 hours.

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