DARDEN RESTAURANTS INC (NYSE:DRI) – A Quality Stock Worth Considering

DARDEN RESTAURANTS INC (NYSE:DRI) has been identified as a potential candidate for quality investors based on the Caviar Cruise screening strategy. The company, which operates well-known restaurant brands like Olive Garden and LongHorn Steakhouse, meets several key criteria for long-term quality investments. Below, we examine why DRI stands out.

Key Strengths of DRI for Quality Investors

• Strong EBIT Growth: Over the past five years, DRI has delivered an impressive EBIT growth rate of 26.36%, significantly outpacing its revenue growth of 4.94%. This indicates improving operational efficiency and profitability.
• High ROIC: The company’s Return on Invested Capital (excluding cash and goodwill) stands at 17.53%, well above the 15% threshold for quality investments. This suggests effective capital allocation.
• Healthy Debt Management: With a Debt-to-Free Cash Flow ratio of 2.06, DRI could repay its debt in just over two years using current cash flows, reflecting strong financial discipline.
• Profit Quality: The five-year average Profit Quality (FCF/Net Income) is 105.45%, meaning the company converts net income into cash efficiently—a positive sign for sustainability.

Fundamental Analysis Summary

DRI holds a neutral fundamental rating of 5/10, with strengths in profitability and financial health. Key takeaways:

• Profitability: Above-industry returns on equity (45.41%) and assets (8.34%), though gross margins are below peers.
• Dividend: A reasonable yield of 2.52%, with a history of growth, though sustainability concerns exist due to high payout ratios.
• Valuation: Trading at a P/E of 23.62, slightly below industry averages, but not deeply undervalued.

Considerations for Investors

While DRI meets many quality criteria, its current ratio (0.42) signals short-term liquidity risks. Additionally, revenue and earnings growth are expected to slow slightly in coming years.

Our Caviar Cruise screener lists more quality stocks updated daily. For a deeper dive, review the full DRI fundamental report.

Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.