Why Value Investors Should Skip This Restaurant Stock

Darden Restaurants, Inc. (NYSE:DRI) is the parent company of several restaurant brands, including Olive Garden, Seasons 52, Bahama Breeze, and Eddie V’s. Through its subsidiaries, the company owns and operates over 1,850 locations. Darden declared a quarterly cash dividend of $1.21 payable today, Nov. 1, and offers a high dividend yield of 3.4%, at a forward dividend of $4.84.

Last see up 0.4% to trade at $143.68, the equity has been charging higher on the charts over the last couple weeks. Shares earlier surged to their highest level since March, with support from their 20-day moving average, but year-to-date DRI still sits slightly below breakeven.

The stock offers a relatively high valuation, at a forward price-earnings ratio of 18.52 and a price-sales ratio of 1.85. DRI has largely been able to bounce back due to its positive 2023 outlook, as well as an ongoing share repurchase program. Darden has already repurchased approximately 1.7 million shares for $199 million, leaving $912 million remaining under the current $1 billion repurchase authorization.

Moreover, the business is estimated to report 7% revenue growth, and 3.9% earnings growth for 2023. Estimates also see a 5.8% jump in revenues and a 12.4% increase in earnings for 2024.

Still, the company’s biggest fundamental weakness appears to be its balance sheet. Darden presents a weak balance sheet with $5.96 billion in total debt, and a meager $377.5 million in cash, making the security a lackluster investment for value investors.