Darden Restaurants, Inc. (DRI), Brinker International, Inc. (EAT): This Company’s Scale Ensures the Freshness of Its Products

I expect Brinker International, Inc. (NYSE:EAT) to concede more market share to its competitors in the near-term, as a result of more aggressive promotional activities by its competitors such as Darden. I prefer Darden over Brinker, because of its diversification across multiple concepts in its restaurant portfolio and its high dividend yield. Brinker International, Inc. (NYSE:EAT)’s 2% dividend yield pales in comparison with the 4.5% yield for Darden.

Buffalo Wild Wings (NASDAQ:BWLD) is differentiated from Darden and Brinker with its specialized niche. It is the largest sports bar restaurant chain in the U.S. and is known for its namesake Buffalo Wild Wings (NASDAQ:BWLD), New York-style chicken wings. It reported a 27.8% and 41.4% increase in quarterly revenue and net earnings to $285.4 million and $16.5 million, respectively. Going forward, management has guided for 17% growth in net earnings for full year 2013.

It has outlined plans to leverage on strong domestic growth prospects, through almost doubling its current locations in the U.S. from 900 to 1,700. However, this superior growth profile has been largely factored into Buffalo Wild Wings (NASDAQ:BWLD)’ valuation, with it trading at a significant premium to its peers with a forward P/E of 22. In comparison, Darden and Brinker are valued by the market at about 15 times forward P/E. Furthermore, Buffalo Wild Wings (NASDAQ:BWLD) does not pay a dividend, unlike its peers.

Conclusion

I am positive on Darden for its economies of scale, multiple concept restaurant brand portfolio, and strong brand names. Its brand improvement initiatives should see positive results in the new fiscal year 2014, with Darden gaining market share at the expense of competitors with its new value-for-money product offerings. Moreover, Darden is reasonably valued at 15 times forward P/E with a juicy 4.5% dividend yield, making it a buy in my books.

The article This Company’s Scale Ensures the Freshness of Its Products originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings and Darden Restaurants. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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