Best stocks: Why this dining stock is hitting highs, even though Josh Brown never eats at Olive Garden

Ritholtz Wealth Management highlighted Darden Restaurants (DRI) as a "Best Stock in the Market," citing its dominant 3-4% market share as the largest U.S. restaurant operator and strong financial performance. Olive Garden accounts for 44% of revenue, with overall systemwide sales projected to exceed $12.1 billion this year, supported by a 2.6% dividend and EPS around $9.50; DRI's EPS has grown at a 12% annual clip over the past 5 years and is expected to grow 9% annually over the next two years. Technically, the stock is in a solid uptrend, hitting new 52-week and all-time highs, with key support levels identified around $200 and $180 for traders and investors, respectively; Darden reports earnings before the open on June 20.

Analysis

Darden Restaurants (DRI) demonstrates robust financial health and market leadership, operating as the largest U.S. restaurant operator with a 3-4% market share and approximately 2,000 establishments. The company's diverse brand portfolio, with Olive Garden contributing 44% of revenue ($3.83 billion in sales and over $800 million in profit last year) and Longhorn Steakhouse 25%, caters to a wide income spectrum, providing inherent diversification. Systemwide sales are projected to exceed $12.1 billion this year, complemented by an approximate $9.50 earnings per share, a 2.6% dividend yield, and an active stock buyback program. Darden has achieved a 6% annual revenue compounding and an impressive 12% annual EPS growth over the past five years, with EPS growth anticipated at 9% annually for the next two years. Operational efficiencies are evident, with Olive Garden's segment profit margin increasing to 23.0% YoY due to lower costs of goods sold, and the rollout of a first-party delivery service is enhancing sales channels. Technically, DRI's stock is in a strong uptrend, trading near all-time highs, approximately 6% above its 50-day moving average and 19% above its 200-day moving average, with a Relative Strength Index of 63, ahead of its earnings report scheduled for June 20th.

Key Decisions for Investors

• Given Darden's consistent EPS growth, solid dividend, ongoing share repurchase program, and strong technical indicators, investors may find the stock an attractive holding, particularly considering its recent performance in a challenging macro environment.
• Investors should closely monitor the upcoming earnings release on June 20th for continued evidence of margin improvement and sales growth, and be aware of key technical support levels, notably near $200 (coinciding with the 50-day moving average) for short-term trend assessment and $180 as a longer-term support benchmark.
• The company's diversified brand strategy, successful adaptation through initiatives like expanded delivery services, and strong execution in managing costs present a compelling case for potential sustained growth, warranting careful consideration for inclusion in a diversified portfolio focused on consumer discretionary sector leaders.