Intrinsic value of Darden Restaurants, Inc. - DRI

Previous Close

$117.10

  Intrinsic Value

$66.01

stock screener

  Rating & Target

sell

-44%

Previous close

$117.10

 
Intrinsic value

$66.01

 
Up/down potential

-44%

 
Rating

sell

We calculate the intrinsic value of DRI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  5.00
Revenue, $m
  8,476
  8,892
  9,329
  9,789
  10,272
  10,780
  11,313
  11,873
  12,462
  13,080
  13,729
  14,412
  15,128
  15,881
  16,671
  17,501
  18,373
  19,289
  20,250
  21,260
  22,320
  23,434
  24,603
  25,831
  27,121
  28,475
  29,897
  31,390
  32,958
  34,604
Variable operating expenses, $m
  7,635
  7,999
  8,382
  8,785
  9,208
  9,652
  10,119
  10,609
  11,125
  11,666
  12,021
  12,619
  13,246
  13,905
  14,597
  15,324
  16,087
  16,889
  17,731
  18,615
  19,543
  20,518
  21,542
  22,617
  23,746
  24,932
  26,177
  27,484
  28,857
  30,299
Fixed operating expenses, $m
  28
  28
  29
  29
  30
  31
  31
  32
  33
  34
  34
  35
  36
  37
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
Total operating expenses, $m
  7,663
  8,027
  8,411
  8,814
  9,238
  9,683
  10,150
  10,641
  11,158
  11,700
  12,055
  12,654
  13,282
  13,942
  14,634
  15,362
  16,126
  16,929
  17,772
  18,657
  19,586
  20,562
  21,587
  22,663
  23,793
  24,980
  26,226
  27,534
  28,908
  30,351
Operating income, $m
  814
  865
  918
  975
  1,034
  1,097
  1,163
  1,232
  1,304
  1,380
  1,674
  1,758
  1,846
  1,939
  2,037
  2,139
  2,247
  2,360
  2,479
  2,604
  2,735
  2,872
  3,017
  3,169
  3,328
  3,495
  3,671
  3,856
  4,050
  4,254
EBITDA, $m
  1,277
  1,340
  1,407
  1,477
  1,550
  1,628
  1,709
  1,795
  1,885
  1,979
  2,078
  2,182
  2,292
  2,407
  2,528
  2,655
  2,788
  2,928
  3,075
  3,230
  3,392
  3,562
  3,741
  3,929
  4,127
  4,334
  4,552
  4,780
  5,020
  5,273
Interest expense (income), $m
  37
  160
  188
  218
  248
  281
  314
  350
  387
  427
  468
  511
  557
  605
  655
  708
  763
  822
  883
  947
  1,015
  1,085
  1,160
  1,238
  1,320
  1,406
  1,497
  1,592
  1,691
  1,796
  1,906
Earnings before tax, $m
  653
  676
  701
  727
  754
  783
  813
  844
  877
  912
  1,163
  1,201
  1,242
  1,284
  1,329
  1,376
  1,425
  1,477
  1,532
  1,589
  1,649
  1,712
  1,779
  1,849
  1,922
  1,999
  2,080
  2,165
  2,254
  2,348
Tax expense, $m
  176
  183
  189
  196
  204
  211
  219
  228
  237
  246
  314
  324
  335
  347
  359
  371
  385
  399
  414
  429
  445
  462
  480
  499
  519
  540
  562
  584
  609
  634
Net income, $m
  477
  494
  512
  531
  550
  571
  593
  616
  641
  666
  849
  877
  906
  937
  970
  1,004
  1,040
  1,078
  1,118
  1,160
  1,204
  1,250
  1,299
  1,349
  1,403
  1,459
  1,518
  1,580
  1,645
  1,714

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  5,739
  6,020
  6,317
  6,628
  6,955
  7,298
  7,659
  8,039
  8,437
  8,856
  9,296
  9,757
  10,243
  10,752
  11,287
  11,849
  12,439
  13,059
  13,710
  14,394
  15,112
  15,866
  16,658
  17,489
  18,362
  19,279
  20,242
  21,253
  22,314
  23,429
Adjusted assets (=assets-cash), $m
  5,739
  6,020
  6,317
  6,628
  6,955
  7,298
  7,659
  8,039
  8,437
  8,856
  9,296
  9,757
  10,243
  10,752
  11,287
  11,849
  12,439
  13,059
  13,710
  14,394
  15,112
  15,866
  16,658
  17,489
  18,362
  19,279
  20,242
  21,253
  22,314
  23,429
Revenue / Adjusted assets
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
  1.477
Average production assets, $m
  3,594
  3,770
  3,956
  4,151
  4,355
  4,571
  4,797
  5,034
  5,284
  5,546
  5,821
  6,111
  6,414
  6,733
  7,069
  7,421
  7,790
  8,178
  8,586
  9,014
  9,464
  9,936
  10,432
  10,952
  11,499
  12,073
  12,676
  13,309
  13,974
  14,672
Working capital, $m
  -1,026
  -1,076
  -1,129
  -1,184
  -1,243
  -1,304
  -1,369
  -1,437
  -1,508
  -1,583
  -1,661
  -1,744
  -1,831
  -1,922
  -2,017
  -2,118
  -2,223
  -2,334
  -2,450
  -2,572
  -2,701
  -2,836
  -2,977
  -3,126
  -3,282
  -3,445
  -3,618
  -3,798
  -3,988
  -4,187
Total debt, $m
  1,089
  1,258
  1,435
  1,622
  1,818
  2,023
  2,240
  2,467
  2,706
  2,956
  3,220
  3,496
  3,787
  4,092
  4,413
  4,749
  5,103
  5,474
  5,864
  6,274
  6,704
  7,155
  7,630
  8,128
  8,651
  9,200
  9,776
  10,382
  11,018
  11,685
Total liabilities, $m
  3,437
  3,606
  3,784
  3,970
  4,166
  4,372
  4,588
  4,815
  5,054
  5,305
  5,568
  5,845
  6,135
  6,440
  6,761
  7,098
  7,451
  7,823
  8,213
  8,622
  9,052
  9,504
  9,978
  10,476
  10,999
  11,548
  12,125
  12,730
  13,366
  14,034
Total equity, $m
  2,301
  2,414
  2,533
  2,658
  2,789
  2,927
  3,071
  3,224
  3,383
  3,551
  3,728
  3,913
  4,107
  4,312
  4,526
  4,752
  4,988
  5,237
  5,498
  5,772
  6,060
  6,362
  6,680
  7,013
  7,363
  7,731
  8,117
  8,522
  8,948
  9,395
Total liabilities and equity, $m
  5,738
  6,020
  6,317
  6,628
  6,955
  7,299
  7,659
  8,039
  8,437
  8,856
  9,296
  9,758
  10,242
  10,752
  11,287
  11,850
  12,439
  13,060
  13,711
  14,394
  15,112
  15,866
  16,658
  17,489
  18,362
  19,279
  20,242
  21,252
  22,314
  23,429
Debt-to-equity ratio
  0.470
  0.520
  0.570
  0.610
  0.650
  0.690
  0.730
  0.770
  0.800
  0.830
  0.860
  0.890
  0.920
  0.950
  0.970
  1.000
  1.020
  1.050
  1.070
  1.090
  1.110
  1.120
  1.140
  1.160
  1.170
  1.190
  1.200
  1.220
  1.230
  1.240
Adjusted equity ratio
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  477
  494
  512
  531
  550
  571
  593
  616
  641
  666
  849
  877
  906
  937
  970
  1,004
  1,040
  1,078
  1,118
  1,160
  1,204
  1,250
  1,299
  1,349
  1,403
  1,459
  1,518
  1,580
  1,645
  1,714
Depreciation, amort., depletion, $m
  463
  475
  488
  502
  516
  531
  547
  563
  580
  599
  404
  424
  445
  468
  491
  515
  541
  568
  596
  626
  657
  690
  724
  761
  799
  838
  880
  924
  970
  1,019
Funds from operations, $m
  940
  969
  1,000
  1,032
  1,066
  1,102
  1,140
  1,179
  1,221
  1,265
  1,253
  1,301
  1,352
  1,405
  1,461
  1,520
  1,581
  1,646
  1,714
  1,786
  1,861
  1,940
  2,023
  2,110
  2,202
  2,298
  2,398
  2,504
  2,616
  2,733
Change in working capital, $m
  -48
  -50
  -53
  -56
  -58
  -61
  -65
  -68
  -71
  -75
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
  -116
  -122
  -128
  -135
  -141
  -149
  -156
  -164
  -172
  -181
  -190
  -199
Cash from operations, $m
  988
  1,019
  1,053
  1,088
  1,125
  1,164
  1,204
  1,247
  1,292
  1,339
  1,331
  1,384
  1,439
  1,496
  1,557
  1,620
  1,687
  1,757
  1,831
  1,908
  1,989
  2,075
  2,164
  2,259
  2,358
  2,461
  2,571
  2,685
  2,805
  2,932
Maintenance CAPEX, $m
  -238
  -250
  -262
  -275
  -288
  -302
  -317
  -333
  -350
  -367
  -385
  -404
  -424
  -445
  -468
  -491
  -515
  -541
  -568
  -596
  -626
  -657
  -690
  -724
  -761
  -799
  -838
  -880
  -924
  -970
New CAPEX, $m
  -171
  -176
  -185
  -195
  -205
  -215
  -226
  -238
  -250
  -262
  -275
  -289
  -304
  -319
  -335
  -352
  -370
  -388
  -408
  -428
  -450
  -472
  -496
  -521
  -547
  -574
  -603
  -633
  -665
  -698
Cash from investing activities, $m
  -409
  -426
  -447
  -470
  -493
  -517
  -543
  -571
  -600
  -629
  -660
  -693
  -728
  -764
  -803
  -843
  -885
  -929
  -976
  -1,024
  -1,076
  -1,129
  -1,186
  -1,245
  -1,308
  -1,373
  -1,441
  -1,513
  -1,589
  -1,668
Free cash flow, $m
  579
  593
  605
  618
  632
  646
  661
  677
  693
  710
  671
  690
  710
  732
  754
  777
  802
  828
  855
  884
  914
  945
  979
  1,014
  1,050
  1,089
  1,129
  1,172
  1,216
  1,263
Issuance/(repayment) of debt, $m
  163
  169
  177
  186
  196
  206
  216
  227
  239
  251
  263
  277
  291
  305
  321
  337
  354
  371
  390
  410
  430
  452
  474
  498
  523
  549
  577
  606
  636
  668
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  163
  169
  177
  186
  196
  206
  216
  227
  239
  251
  263
  277
  291
  305
  321
  337
  354
  371
  390
  410
  430
  452
  474
  498
  523
  549
  577
  606
  636
  668
Total cash flow (excl. dividends), $m
  742
  762
  783
  805
  828
  852
  877
  904
  932
  961
  934
  967
  1,001
  1,037
  1,074
  1,114
  1,156
  1,199
  1,245
  1,293
  1,344
  1,397
  1,453
  1,512
  1,573
  1,638
  1,706
  1,777
  1,852
  1,931
Retained Cash Flow (-), $m
  -106
  -113
  -119
  -125
  -131
  -138
  -145
  -152
  -160
  -168
  -176
  -185
  -195
  -204
  -215
  -225
  -237
  -249
  -261
  -274
  -288
  -302
  -317
  -333
  -350
  -368
  -386
  -405
  -426
  -447
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  635
  649
  664
  680
  696
  714
  732
  752
  772
  793
  758
  782
  806
  832
  860
  889
  919
  951
  984
  1,019
  1,056
  1,095
  1,135
  1,178
  1,223
  1,270
  1,320
  1,372
  1,427
  1,484
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  609
  594
  578
  560
  540
  518
  495
  470
  443
  416
  360
  334
  307
  279
  252
  226
  200
  175
  152
  129
  109
  91
  74
  60
  48
  37
  28
  21
  16
  11
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Darden Restaurants, Inc. is a full-service restaurant company. The Company owned and operated 1,536 restaurants through its subsidiaries in the United States and Canada, as of May 29, 2016. The Company's segments include Olive Garden, LongHorn Steakhouse, Fine Dining (which includes The Capital Grille, and Eddie V's Prime Seafood and Wildfish Seafood Grille (Eddie V's)) and Other Business (which includes Yard House, Seasons 52, Bahama Breeze, consumer-packaged goods and franchise revenues). As of May 29, 2016, the Company also had 50 restaurants operated by independent third parties pursuant to area development and franchise agreements. Olive Garden's menu includes a range of authentic Italian foods featuring fresh ingredients and a selection of imported Italian wines. LongHorn Steakhouse restaurants feature a range of menu items, including fresh steaks and chicken, as well as salmon, shrimp, ribs, pork chops, burgers and prime rib.

FINANCIAL RATIOS  of  Darden Restaurants, Inc. (DRI)

Valuation Ratios
P/E Ratio 30.7
Price to Sales 2
Price to Book 7
Price to Tangible Book
Price to Cash Flow 16.3
Price to Free Cash Flow 25.2
Growth Rates
Sales Growth Rate 3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.2%
Cap. Spend. - 3 Yr. Gr. Rate -6.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 44.6%
Total Debt to Equity 44.6%
Interest Coverage 18
Management Effectiveness
Return On Assets 10.3%
Ret/ On Assets - 3 Yr. Avg. 10.9%
Return On Total Capital 17.6%
Ret/ On T. Cap. - 3 Yr. Avg. 15.4%
Return On Equity 23.6%
Return On Equity - 3 Yr. Avg. 24.2%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 21.8%
Gross Margin - 3 Yr. Avg. 21.8%
EBITDA Margin 13.2%
EBITDA Margin - 3 Yr. Avg. 11.8%
Operating Margin 9.4%
Oper. Margin - 3 Yr. Avg. 8%
Pre-Tax Margin 8.9%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin 6.7%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate 24.2%
Eff/ Tax Rate - 3 Yr. Avg. 10.7%
Payout Ratio 58.2%

DRI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DRI stock intrinsic value calculation we used $8080 million for the last fiscal year's total revenue generated by Darden Restaurants, Inc.. The default revenue input number comes from 0001 income statement of Darden Restaurants, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our DRI stock valuation model: a) initial revenue growth rate of 4.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for DRI is calculated based on our internal credit rating of Darden Restaurants, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Darden Restaurants, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of DRI stock the variable cost ratio is equal to 90.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $27 million in the base year in the intrinsic value calculation for DRI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 17.3% for Darden Restaurants, Inc..

Corporate tax rate of 27% is the nominal tax rate for Darden Restaurants, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the DRI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for DRI are equal to 42.4%.

Life of production assets of 14.4 years is the average useful life of capital assets used in Darden Restaurants, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for DRI is equal to -12.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2194.8 million for Darden Restaurants, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 123.532 million for Darden Restaurants, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Darden Restaurants, Inc. at the current share price and the inputted number of shares is $14.5 billion.

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