Let’s Wine and Dine

Somnath is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

 Eating is healthy for your investments. The restaurant industry is moving at a very fast pace. The full-service restaurants make for interesting value opportunities compared to quick service restaurants in the stock market.

Eating out is healthy

Darden Restaurants (NYSE: DRI)’s stock price rose 4% on September 21st as the company announced 85 cents per share of earnings for the quarter ending in August 2012, the first quarter of its fiscal year. Darden’s best known restaurant brands are Olive Garden, Red Lobster, LongHorn Steakhouse, and the Capital Grille; in total, it owns about 2,000 locations. In the first quarter of last year Darden had posted 78 cents in EPS, so it has seen a 9% increase over the last year. The reported number also narrowly beat analyst expectations, as the Street’s consensus had been for 83 cents per share. Revenue for the quarter was also up, though same-store sales were slightly down. Darden announced that it plans to continue driving revenue growth by opening new locations, as it expects to increase restaurant count by 110 this year (about 5%).

Darden Restaurants, Inc. makes for an interesting stock pick in terms of both value and income. The dividend yield is 3.2% and at a $7.4 billion market cap, it trades at 16 times trailing earnings. Sell-side analysts expect earnings per share for the current fiscal year to be at $3.84, which would imply a current-year P/E multiple of 15. The beta of 0.7 is lower than might be expected for a sit-down restaurant, and combined with its dividend Darden makes for a good defensive pick as well.

The other restaurateurs

Fellow public full-service restaurants include Cracker Barrel Old Country Store Inc. and The Cheesecake Factory Incorporated. 

The Cheesecake Factory (NASDAQ: CAKE) operated 170 dining restaurants, in which 156 under The Cheesecake Factory mark, 13 under the Grand Lux Cafe mark and one under the RockSugar Pan Asian Kitchen mark. The Company also operated two bakery production facilities. The Company’s restaurants range in size from 7,000 to 15,000 interior square feet, which provides liquor service and are generally open seven days a week for lunch and dinner, as well as Sunday brunch. Its bakery operations create and market bakery products under The Cheesecake Factory, The Cheesecake Factory Bakery and The Dream Factory marks as well as private-label bakery products to other foodservice operators, retailers and distributors (bakery sales). Its bakery’s provides cheesecakes and other baked goods to its restaurants. On December 5, 2011, the Company announced the opening of its Cheesecake Factory restaurant at The Shops at La Cantera Mall in San Antonio, Texas.

The company announced that for third quarter of 2012, it expects earnings per share (EPS) in the range of $0.47-$0.49. The Company raised fiscal 2012 EPS guidance to a range of $1.87-$1.93. According to I/B/E/S Estimates, analysts are expecting the Company to report EPS of $0.47 for third quarter of 2012 and EPS of $1.88 for fiscal 2012. 

Cracker Barrel Old Country Store (NASDAQ: CBRL) operates 604 stores in 42 states. The Company’s restaurant generated approximately 79% of its total revenue during the fiscal year ended July 29, 2011 (fiscal 2011). Its restaurants serve breakfast, lunch and dinner daily between the hours of 6:00 a.m. and 10:00 p.m. (closing at 11:00 p.m. on Fridays and Saturdays). The restaurants do not serve alcoholic beverages. Breakfast items can be ordered at any time throughout the day and include juices, eggs, pancakes, bacon, country ham, sausage, grits, and a range of biscuit specialties, such as gravy and biscuits and country ham and biscuits. Lunch and dinner items include country ham, chicken and dumplings, chicken fried chicken, meatloaf, country fried steak, pork chops, fish, steak, roast beef, vegetable plates, salads, sandwiches, soups and specialty items, such as pinto beans and turnip greens. In fiscal 2011, the Company opened eleven new stores.

The company announced that for fiscal 2013, it expects total revenue of between $2.6 billion-$2.65 billion and earnings per diluted share (EPS) of between $4.50 and $4.70. The increased revenue projection for fiscal 2013 reflects the expected opening of 12 new Cracker Barrel stores and projected increases in comparable store restaurant and retail sales in a range of 2.0% to 3.0%. The Company expects to report EPS for the first quarter of 2013 of between $1.00 and $1.05. Its Board of Directors has increased the quarterly dividend to $0.50 per share on the Company’s common stock, payable on November 5, 2012 to shareholders of record as of October 19, 2012. This represents a 25% increase over the Company’s last quarterly dividend of $0.40.  

Benefits of eating out

Choosing between the restaurant stocks will be tough since all full service restaurants are on a growth spree. Cheesecake Factory has a somewhat higher multiple, but it has an attractive brand and good growth opportunities. I strongly believe that in general Darden and the cheap Cracker Barrel would be two good stocks to play with.

SomnathGuha has no positions in the stocks mentioned above. The Motley Fool owns shares of Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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