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Darden: Dining Dollars

09/24/2014 7:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Our latest income idea owns and operates a number of restaurant brands including Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, and The Capital Grille, notes Mark Skousen, editor of High Income Alert.

Based in Orlando, Darden Restaurants (DRI) operates more than 1,500 restaurants, employs more than 150,000 people, and serves over 320 million meals a year.

Peter Lynch, still history’s greatest equity fund manager, once said that if you want to find a great company, you might start by taking a closer look at the companies you patronize yourself.

I’m a longtime fan of The Olive Garden—an Italian casual dining chain—and some of Darden’s other restaurants. I’ve been impressed with the quality of the food, the service, the atmosphere, and the whole dining experience.

I seem to have a lot of company. Sales at Darden Restaurants were nearly $6.3 billion during the last 12 months.

And while earnings were off in the most recent quarter, the outlook is highly positive. I estimate Darden will earn $2.25 a share in the year ahead and $2.90 the following year.

Despite this nearly 30% growth, Darden is selling at just 19 times trailing earnings. It is also yielding 4.6% and the total return picture is compelling.

So buy Darden at market. And place a protective stop at $40. If you prefer to play this one more aggressively, try the January $50 calls.

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