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Brand Face-Off: Darden Restaurants, Inc. vs. Bloomin' Brands Inc

Evaluating DRI and BLMN from technical and sentiment viewpoints

by 3/4/2014 12:44:06 PM
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Though Darden Restaurants, Inc. (NYSE:DRI) and Bloomin' Brands Inc (NASDAQ:BLMN) are both notable kingpins in the restaurant business, their shares have taken different routes on the charts. Having shed 11.3% so far in 2014, DRI is currently positioned just 4.2% above its year-ago price at $48.21. Meanwhile, BLMN has tacked on 11.1% since the close on Feb. 24 to trade at $25.52 (thanks to a well-received fourth-quarter earnings report), bringing its year-over-year gain to almost 50%.

Daily Chart of DRI since March 2013

Daily Chart of BLMN since March 2013

On the fundamental front, Darden Restaurants has received a great deal of attention as of late. Just yesterday, the restaurateur confirmed plans to spin off or sell its Red Lobster chain. Plus, the company lowered its expectations for its fiscal third-quarter earnings report, which is due out on March 21. As such, DRI received price-target cuts from UBS and Credit Suisse this morning, and could potentially see more bearish notes in the near term, considering the average 12-month price target of $51.95 is still perched higher than the shares' current price. Bloomin' Brands' average 12-month price target of $28.40 also stands at a premium to the shares' current price, but this makes more sense, given its longer-term technical success.

Meanwhile, on Main Street, investors have significantly upped the bearish ante on Bloomin' Brands Inc. Since the Jan. 15 reporting period, short interest grew by 84.2%, and now accounts for 13.4% of the stock's float, or 8.6 days' worth of pent-up buying demand, at the stock's average pace of trading. Should BLMN maintain its upward trajectory, potential short-covering activity may be in the cards, which could provide an additional boost for the shares. Darden Restaurants has also racked up a heavy amount of short interest, as these bearish bets make up 9.5% of the equity's float. Still, such activity is less surprising, given DRI's technical rut.

It seems then that both Darden Restaurants, Inc. (NYSE:DRI) and Bloomin' Brands Inc (NASDAQ:BLMN) are positioned to extend their trajectories in their respective directions, from a contrarian point of view. With that being said, BLMN is, without a doubt, the winner of this week's Brand Face-Off.

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