Why Darden Restaurants, Inc. Stock Jumped Today

By Jeremy Bowman Markets Fool.com

What happened

Continue Reading Below

Shares ofDarden Restaurants, Inc.(NYSE: DRI) were looking tasty to investors on Tuesday as the Olive Garden-parent surged after a strong third-quarter earnings report and on news that it would acquire casual-dining chain Cheddar's Scratch Kitchen.

As of 11:51 a.m. EDT, the stock was up 8.3%.

Image source: Olive Garden.

So what

Darden, which also owns Capital Grille and Longhorn Steakhouse, among other chains, said comparable sales were up companywide by 0.9% and increased 1.4% at Olive Garden, a respectable result at a time when many restaurant chains have been seeing sales at established stores fall.

Continue Reading Below

Overall revenue ticked up 1.7% to $1.88 billion, beating estimates of $1.86 billion. On the bottom line, adjusted earnings per share increased 9.1% to $1.32, ahead of the consensus at $1.27.

The market also seem pleased with the company's move to acquire Cheddar's in an all-cash acquisition for $780 million. The deal comes two years after Darden sold Red Lobster for $2.1 billion. With Cheddar's, the restaurant parent gains 165 locations under its umbrella, growing its base by about 10% and making Cheddar's the company's third-largest chain. Management said it expected the deal to be accretive to next year's EPS by $0.12.

Now what

Darden also lifted its full-year EPS forecast to $3.95-$4, up from a previous range of $3.87-$3.97, and said it expected full-year comparable sales growth of 1.5%.

Shares of the casual dining company have been on a roll recently as the stock has increased 25% over the past year. For a slow growth company, the P/E valuation may be getting stretched at more than 20 based on this year's earnings, but the Cheddar's acquisition suggests management is interested in expansion once again.

10 stocks we like better than Darden Restaurants
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Darden Restaurants wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.