Darden Restaurants Inc. is a leader in the restaurant industry, which is experiencing a slight recovery, an analyst said as he maintained his "Buy" rating on the stock.
THE OPINION: The operator of Red Lobster, Olive Garden and other chains, said late Tuesday its first-quarter net income rose 19 percent on a rise in revenue to beat estimates. UBS analyst David Palmer noted that revenue at locations open at least a year was 1.1 percent overall for the company, which was below his estimate of 2 percent, but ahead of a flat industry. That's an important measure for restaurants because it measures existing growth, without including new or closed locations.
"Darden is a leading company in an industry that at least appears to be experiencing a shallow recovery," Palmer told clients in a note late Tuesday.
Shoppers had cut their spending in restaurants during the downturn, but there are signs business is improving.
He said the company had a tough summer because of timing of its "Endless Shrimp" promotion versus last year. But the company is going to do the promotion this fall at Red Lobster, so that will help sales, Palmer said. He also said Darden plans to have national cable television advertisements for a two-for-$29.99 deal at LongHorn.
He maintained his $54 target share price.
THE STOCK: Shares of Darden fell $1.05, or 2.4 percent, to $42.97 on heavy volume in midday trading Tuesday. The stock has traded in a range of $49.01 to $29.95 in the past 52-weeks.