Is Darden Restaurants Stock Worth the Risk?

Year-over-year, DRI sports an 18% lead

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Olive Garden and LongHorn Steakhouse parent Darden Restaurants, Inc. (NYSE:DRI) is down 0.8% to trade at $146.21 at last check, despite a fresh price-target hike from J.P. Morgan Securities to $172 from $167. The security has had a few volatile months on the charts, following its Sept. 23, all-time high of $164.27. The shares are testing a familiar floor at the 180-day moving average today, which coincides with the $145 area, while sporting an 18% year-over-year lead.

DRI 180 Day

The brokerage bunch is mostly bullish towards the equity, with 14 of the 19 analysts in question sporting a "buy" or better, while five carried a tepid "hold" rating. Plus, the 12-month consensus target price of $166.87 is a roughly 14% premium to current levels.

The options pits are much less optimistic. This is per DRI's Schaeffer's put/call open interest ratio (SOIR) of 1.73, which stands higher than 87% of readings from the last year. In simpler terms, short-term options traders have rarely been more put-biased.

Plus, DRI sports attractively priced premiums at the moment. The security's Schaeffer's Volatility Index (SVI) of 29% sits in the relatively low 17th percentile of its annual range. This suggests options traders' volatility expectations are not very high right now.

Darden Restaurants has struggled to find consistent top- and bottom-line growth over the last few years. Although DRI’s trailing 12-month revenues are up 11% since 2021, the restaurant name previously experienced a 15% decline in revenues between 2019 and 2021.

What's more, the company reported $52.4 million in net losses for 2020. Nonetheless, DRI has staged a solid recovery in terms of the bottom-line, increasing net income by $876.5 million since 2020.

From a fundamental point of view, however, Darden Restaurants stock offers very little security. DRI holds a weak balance sheet with $999 million in cash, and $5.2 billion in total debt. The equity also has a relatively high valuation, with a price-earnings ratio of 20.96, and a price-sales ratio of 2.51, making dividends DRI’s best quality. Specifically, the company now offers a forward dividend of $4.40, with a dividend yield of 2.98%.

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