Wednesday, October 24, 2012

DRI Rises: Will the Lobster Perform?

Shares of Red Lobster proprietor Darden Restaurants (DRI) is moving up slightly on a UBS Securities upgrade to “Buy,” rising 65 cents, or 2%, to $33.21. Analyst David Palmer raised the stock from “Neutral” and increased his price target to $36 from $34.

The endorsement’s vague, though: The stock is cheap at 11 times calendar 2010 estimated earnings, and besides, “Industry trends,” he writes, “have stabilized in the last five to six weeks — something that could prove heartening to Darden and its investors.” The company may make its same-store sales forecast of a 3% decline in the second quarter.

Mind you, Darden fell 7% on September 30 after same-store sales fell 8% versus the expected 4%.

Can you trust Darden now?

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