Darden Restaurants, Dine Equity: A Look at 2 Value Plays

A few thoughts on Darden Restaurants (DRI) quarterly earnings which was released last night. (Call Transcript) Of all my restaurant picks and holdings, DRI is the only fixer upper in the portfolio. I thought that the quarter was OK and frankly I was braced for worse when the company lowered guidance a few weeks ago. The Rare acquisition is still being absorbed and integrated and the steakhouse business is the weakest in the casual dining sector which is a drag on DRI.

In the casual dining sector of the industry the two best companies which also have the two best managers are Clarence Otis of DRI and Julia Stewart of Dine Equity (DIN). DIN was formed by the acquisition of Applebee’s (APPB) by IHOP a few months ago. Both of these companies are in the process of integrating acquisitions. Of the two, I consider DRI to be in better financial condition. Stewart has her hands full with the recent departure of CFO, Thomas Conforti.

Last night on Jim Cramer’s Mad Money show on CNBC , DRI’s Otis mentioned that he was seeing some traffic flow from the closing of lesser chains such as Bennigan’s. So while I see both DRI and DIN as value and fixer upper plays, DRI offers the better opportunity.

The company guided to an implied EPS range of $2.74 to $2.88 with the midrange of $2.81, 2 cents higher than analysts’ estimates of $2.79. All of these EPS figures are assuming elevated levels of commodity prices which are not likely to hold.

Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC was long shares of DRI --- although positions can change at any time.

 

Comments

[beezlebub:]

couldn't agree more on dri.... not so sure about din, have to do more work on it

2008 Sep 18 09:15 AM

[sevilsivle:]

I agree that DRI is a fixer upper, however DNI is doomed to failure under the leadership of Stewart. The loss of the CFO should raise the red flag here. DRI did not make near the same bad deal that Stewart sold to the board at what is now DIN. You are right when you say Stewart has her hands full.

2008 Sep 22 04:33 PM

[discov:]

DIN is a piece of trash. It may trade up from here for a while, because of the short sqeeze, but with the massive debt they still hold, a slowing economy and mcd stealing market share, DIN won't make it.

disclosure short DIN and short DIN puts

2008 Nov 01 02:20 AM

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