Darden Restaurants, Inc. (DRI): A Good Fit For Berkshire Hathaway Inc. (BRK.B)

Currently, Darden trades at 13.2 times trailing earnings and 12.6 times forward earnings. Based on these numbers, it is difficult to argue that Darden is “dirt cheap”, but Buffett does not necessarily seek out “cheap” investments. Buffett has famously said:

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

In terms of the value of the deal, currently Darden’s current equity value is $5.98 billion and the company has debt of $2.93 billion. So, given a reasonable premium, the total cost of the deal for Berkshire would be likely be close to $10 billion. Prior to the Heinz deal, Buffett said that he was looking for a deal between $20 billion & $30 billion. Berkshire’s investment in Heinz will cost just over $12 billion, so, based on size, Darden would be a nice fit for Berkshire.

Conclusion

Given its simple and easy to understand business, competitive advantage, market leading position, and price Darden is a good fit for Berkshire and a possible target for Buffett. However, my speculation that Darden could be takeover target for Berkshire is not the only reason to consider buying the stock. In addition to its high quality brands and reasonable valuation, Darden also offers a 4.33% dividend yield.

The article Darden Restaurants: A Good Fit For Berkshire originally appeared on Fool.com and is written by Sammy Pollack.

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