What Do These Factors Say About Darden Restaurants?

With shares of Darden Restaurants (NYSE:DRI) trading around $50, is DRI an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Darden Restaurants owns and operates full service restaurants in the United States and Canada. It operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s Prime Seafood, and Wildfish Seafood Grille brand names. The lack of time in many of the busy lives in the Western world has contributed towards the demand for these restaurants. As consumers look for more efficient eating options, look for Darden Restaurants to provide the services needed.

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The PMI Group, Inc.(PINK:PPMIQ) fell by 6.74% to close at $0.0830 in its last session. Past six months the stocks have been moving at an upward momentum, it was at its peak in the first week of February, but fell after a week. After a bit of fluctuation it rose again in the beginning of March, moving steady and yet a correction is observed in the market. Although the traded volume of 1.75M is strong compared to its average volume of 1.91M, which might show the decline in share price is just helping to catch its breath and hit even higher peaks.

Head on over to the next page to explore the technical landscape of Darden Restaurants’s stock…

T = Technicals on the Stock Chart are Strong

Since the company had its initial public offering in 1995, Darden Restaurants’s stock has witnessed a wonderful long-term uptrend. Currently, the stock is resting after coming down from a higher high. A price trend and its strength can be identified using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen below, Darden Restaurants is trading above all of its key averages that may be getting ready to rise. This signals the potential beginning of an uptrend in the near-term.

DRI

(Source: Thinkorswim)

The PMI Group, Inc.(PINK:PPMIQ) fell by 6.74% to close at $0.0830 in its last session. Past six months the stocks have been moving at an upward momentum, it was at its peak in the first week of February, but fell after a week. After a bit of fluctuation it rose again in the beginning of March, moving steady and yet a correction is observed in the market. Although the traded volume of 1.75M is strong compared to its average volume of 1.91M, which might show the decline in share price is just helping to catch its breath and hit even higher peaks.

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Taking a look at the implied volatility and implied volatility skew levels of Darden Restaurants options may help determine if investors are bullish, neutral, or bearish. As seen in the price chart above, the implied volatility (red) of Darden Restaurants options is at 19.46 percent today which coincides with a 13th percentile over the last 30 trading days and 15th percentile over the last 90 trading days. What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

The implied volatility skew of April and May put options is steep while call option skew is average. So as of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. Investors are buying a minimal amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Improving Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising growth rates. What do the last four quarterly earnings and revenue growth figures for Darden Restaurants look like? The last four quarterly earnings growth (Y-O-Y) rates have been: -18.4, -35, 8.97, and 16.33 percent while the last four revenue growth (Y-O-Y) rates have all been: 4.56, 7.02, 4.78, and 3.77 percent. Darden Restaurants has posted excellent revenue growth but mediocre earnings growth over the last four quarters.

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More importantly, how did investors take these numbers? The last four quarterly earnings announcement reactions help gauge investor sentiment on Darden Restaurants’s stock. The last four quarters have seen next trading session returns of 1.34, -2.86, 4.55, and -1.01 percent. Investors have had mixed feelings about the last four earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Darden Restaurants stock done relative to its peers and sector? Year-to-date, the stock is returning 11.56 percent while its competitors, Ignite Restaurants (NASDAQ:IRG), BJ’s Restaurants (NASDAQ:BJRI), Cheesecake Factory (NASDAQ:CAKE), and sector are returning 16.46, -1.58, 14.26, and 7.24 percent respectively. Darden Restaurants has been an average relative performer.

The PMI Group, Inc.(PINK:PPMIQ) fell by 6.74% to close at $0.0830 in its last session. Past six months the stocks have been moving at an upward momentum, it was at its peak in the first week of February, but fell after a week. After a bit of fluctuation it rose again in the beginning of March, moving steady and yet a correction is observed in the market. Although the traded volume of 1.75M is strong compared to its average volume of 1.91M, which might show the decline in share price is just helping to catch its breath and hit even higher peaks.

Conclusion

Darden Restaurants is providing services that most busy people allocate limited time to: preparing meals. The stock has had an uptrend intact since its IPO in 1995 and shows no signs of slowing. Earnings and revenue growth rates have been increasing during most quarters. Relative to its peers and sector, the stock has been an average performer in a strong area. Look for Darden Restaurants to OUTPERFORM.

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