Darden Restaurants [NYSE:DRI] 12/24/07 close: $27.61 Yield = 2.6%
52 week range: $26.90 - $47.60
Brinker International: [NYSE:EAT] 12/24/07 close $19.98 Yield = 2.2%
52 week range: $18.92 - $35.74
Darden owns the casual dining brands Olive Garden, Red Lobster, Longhorn Steakhouse, Bugaboo Creek , and Capitol Grille. They are the world's largest operator in their field [@$6 Billion sales].
Brinker International is the parent company of Chili's, Romano's Macaroni Grill, On the Border and Maggiano's.
Both these fine firms have been pummeled in the market due to slowing growth tied to fears of weaker consumer spending. DRI shares have plunged from their June high of $47.60 to today's $27.61. EAT shares have dropped from February's $35.70 to just $19.98.
Are these huge dips justified?
After reviewing the new, lowered expectations, I think not.
Darden's current estimate for the FY ending May 2008 is $2.62 [down from the previous estimate $2.80] and Brinker's FY ending June 2008 should come in around $1.67 versus the $1.76 all-time record EPS of the previous FY. For the upcoming FY's analysts see DRI at $3.17 [higher than ever before] and Brinker coming in at $2.06/share.
With each of these companies expected to hit record sales and earnings within 18 months perhaps this is a good time to go against the negativity of the crowd to buy low while the group is out of favor.
Valuations are fabulous. DRI and EAT have 10-year median P/E's of 16X and 17X respectively versus current forward multiples of just 8.7X and 9.7X. The dividend yields for each company are at their highest ever for shareholders. Price/CF and P/BV look great for both stocks compared with all historical data.
Each of these companies has a share price near their 3 - 4 year absolute low and nowhere close to the levels they were attracting even a few weeks ago.
A return to even 15X next year's EPS for DRI leads to a $47.55 target price witin 18 months - up 72.2% plus dividends.
Even 16X EPS for Brinker's coming FY brings me to a 19 month goal price of $30.90 or higher by 54.6% on top of their 2.14% dividend.
Each of these companies earned 'A' financial strength ratings from Value Line in the December 7th reports. DRI and EAT also received extremely high earnings predicability marks of 95th and 100th percentile respectively.
It is always remarkable to me that the same analysts that loved these shares [less than a year ago] at much higher price points, now put 'sell' or 'hold' ratings on them at bargain levels.
In order to 'buy low/sell high' you need to do the first part when things look just as they do today. It never feels comfortable when you go agaist the crowd but it pays off big-time when things look better again.
FMR [Fidelity Funds] and Barclay's Global Investors owned 10.1% & 11% of EAT shares as of the September proxy statement with 4 other big holders with an additional 28%. Barclays also owned 14.7% of Darden's shares.
John Templeton had an old saying... "If you wait to see light at the end of the tunnel ...you've already missed the bottom."
You have a great chance to own two great players here near multi-year lows despite the fact that each is expected to post record numbers within 12 - 18 months.
Eat up.
52 week range: $26.90 - $47.60
Brinker International: [NYSE:EAT] 12/24/07 close $19.98 Yield = 2.2%
52 week range: $18.92 - $35.74
Darden owns the casual dining brands Olive Garden, Red Lobster, Longhorn Steakhouse, Bugaboo Creek , and Capitol Grille. They are the world's largest operator in their field [@$6 Billion sales].
Brinker International is the parent company of Chili's, Romano's Macaroni Grill, On the Border and Maggiano's.
Both these fine firms have been pummeled in the market due to slowing growth tied to fears of weaker consumer spending. DRI shares have plunged from their June high of $47.60 to today's $27.61. EAT shares have dropped from February's $35.70 to just $19.98.
Are these huge dips justified?
After reviewing the new, lowered expectations, I think not.
Darden's current estimate for the FY ending May 2008 is $2.62 [down from the previous estimate $2.80] and Brinker's FY ending June 2008 should come in around $1.67 versus the $1.76 all-time record EPS of the previous FY. For the upcoming FY's analysts see DRI at $3.17 [higher than ever before] and Brinker coming in at $2.06/share.
With each of these companies expected to hit record sales and earnings within 18 months perhaps this is a good time to go against the negativity of the crowd to buy low while the group is out of favor.
Valuations are fabulous. DRI and EAT have 10-year median P/E's of 16X and 17X respectively versus current forward multiples of just 8.7X and 9.7X. The dividend yields for each company are at their highest ever for shareholders. Price/CF and P/BV look great for both stocks compared with all historical data.
Each of these companies has a share price near their 3 - 4 year absolute low and nowhere close to the levels they were attracting even a few weeks ago.
A return to even 15X next year's EPS for DRI leads to a $47.55 target price witin 18 months - up 72.2% plus dividends.
Even 16X EPS for Brinker's coming FY brings me to a 19 month goal price of $30.90 or higher by 54.6% on top of their 2.14% dividend.
Each of these companies earned 'A' financial strength ratings from Value Line in the December 7th reports. DRI and EAT also received extremely high earnings predicability marks of 95th and 100th percentile respectively.
It is always remarkable to me that the same analysts that loved these shares [less than a year ago] at much higher price points, now put 'sell' or 'hold' ratings on them at bargain levels.
In order to 'buy low/sell high' you need to do the first part when things look just as they do today. It never feels comfortable when you go agaist the crowd but it pays off big-time when things look better again.
FMR [Fidelity Funds] and Barclay's Global Investors owned 10.1% & 11% of EAT shares as of the September proxy statement with 4 other big holders with an additional 28%. Barclays also owned 14.7% of Darden's shares.
John Templeton had an old saying... "If you wait to see light at the end of the tunnel ...you've already missed the bottom."
You have a great chance to own two great players here near multi-year lows despite the fact that each is expected to post record numbers within 12 - 18 months.
Eat up.
