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Will Darden Restaurants (USA Stocks:DRI) debt increase in January

December 13, 2024  By Aina Ster
Macroaxis Story
Darden Restaurants carries $5.43 billion in debt, with a debt-to-equity ratio of 2.89, indicating a strong reliance on borrowed funds for its operations. Its current ratio stands at 0.51, which suggests it may struggle to meet short-term financial obligations as they come due. However, leveraging debt can still be a strategic move for Darden if it leads to high-return growth opportunities.

Important Points

Trading Darden Restaurants stock with leverage can be an enticing opportunity, especially when considering its robust free cash flow of 993.4M and a forward dividend rate of 5.6, which suggests a solid financial footing. However, investors should be mindful of the downside variance of 1.4, indicating potential volatility that could amplify both gains and losses when using leverage.
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Reviewed by Raphi Shpitalnik

Every rose has its thorn, and for Darden Restaurants, the thorn might just be its leverage. With non-current liabilities towering at $6.9 billion against a net invested capital of $3.8 billion, the company is balancing a significant debt load. This level of leverage can amplify returns when times are good, but it also means that Darden needs to maintain strong cash flows to meet its obligations. Fortunately, the company seems to be managing well, with a free cash flow of $993.4 million providing some cushion. However, investors should keep an eye on these figures as they evaluate Darden's financial outlook for January, especially considering the potential impact of economic fluctuations on the restaurant industry. Darden Restaurants is set to release its earnings today. Recently, the company's Payables Turnover has been on the rise compared to previous years. Meanwhile, its Capex to Revenue ratio is expected to climb to 0.06, while the Market Cap might dip below $1.7 billion. While some investors are overly focused on the broader hotels, restaurants, and leisure sector, Darden Restaurants presents a compelling investment opportunity. It's worth considering whether Darden's stock is fairly valued as we approach January.
Darden Restaurants financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures the total debt position of Darden Restaurants, including all of Darden Restaurants's outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Darden Restaurants assets, the company is considered highly leveraged. Understanding the composition and structure of overall Darden Restaurants debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business is and if it is worth investing in it. Please read more on our technical analysis page.

Understanding Darden Total Debt

Darden Restaurants liabilities are broken down into two parts on the balance sheet. These are short-term (or current) obligations and long-term debt. Darden Restaurants has to fulfill its short-term liabilities in this reporting year and should be no more than 12 months old. Long-term debt, on the other hand, is anything beyond the 12-month payment timeframe. Common short-term liabilities found on Darden Restaurants balance sheet include debt obligations and money owed to different Darden Restaurants vendors, workers, and loan providers. Below is the chart of Darden main long-term debt accounts currently reported on its balance sheet.
You can use Darden Restaurants financial leverage analysis tool to get a better grip on understanding its financial position

How important is Darden Restaurants's Liquidity

Darden Restaurants financial leverage refers to using borrowed capital as a funding source to finance Darden Restaurants ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Darden Restaurants financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Darden Restaurants' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Darden Restaurants' financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Darden Restaurants's total debt and its cash.

Darden Restaurants Gross Profit

Darden Restaurants Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Darden Restaurants previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Darden Restaurants Gross Profit growth over the last 10 years. Please check Darden Restaurants' gross profit and other fundamental indicators for more details.

A Deeper Perspective

The firm reported the last year's revenue of 11.39 B. Total Income to common stockholders was 1.03 B with profit before taxes, overhead, and interest of 2 B.

Liabilities Breakdown

Total Current Liabilities
7.2 B
Non Current Liabilities Total
Non Current Liabilities Other
Total Current Liabilities1.26 Billion
Liabilities And Stockholders Equity11.89 Billion
Non Current Liabilities Total7.23 Billion
Non Current Liabilities Other1.15 Billion
Understanding leverage is crucial because it can amplify both gains and losses.
For Darden Restaurants, the financial outlook in January presents a mixed bag for investors. With a total debt of $5.43 billion against a market capitalization of $19.72 billion, the company maintains a manageable leverage ratio. However, the net interest income shows a loss of 138.7 million, indicating significant interest expenses that could impact profitability. Investors should weigh these factors alongside the company's forward dividend yield of 3.34% as they consider the potential risks and rewards..

Our Darden analysis signifies possible reversion in January

Darden Restaurants' recent drop in Value at Risk (VaR) to -1.78 might signal potential price declines ahead, raising concerns for investors. VaR measures the risk of loss in an investment's value, and this shift suggests Darden's stock could experience some instability. As we approach January, this change might indicate a possible correction in the stock's path. Investors should monitor market trends and company performance closely to manage any upcoming volatility. Despite this, Darden Restaurants exhibits relatively low volatility, with a skewness of 2.07 and kurtosis of 7.23. Understanding these volatility trends can help investors time their market moves.
In bear markets, increased volatility can affect Darden's stock price, prompting investors to adjust their portfolios by diversifying as prices drop.As we look ahead to 2024, Darden Restaurants presents a compelling opportunity for investors. With a strong analyst consensus rating of "Buy" and a notable number of strong buy recommendations at 14, the stock is positioned favorably in the market. The estimated target price of $169.39 suggests potential upside from current levels, reflecting confidence in the company's growth prospects. While the restaurant industry can be unpredictable, Darden's robust market presence and strategic initiatives could make it a rewarding addition to your portfolio. However, as with any investment, it's crucial to stay informed and consider your risk tolerance before making a decision..

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Editorial Staff

Aina Ster is a Member of Macroaxis Editorial Board. Aina delivers weekly perspective on ongoing market and economic trends, analysis and tips from predictive analysis to forecasting across various financial instruments. View Profile
This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Aina Ster do not own shares of Darden Restaurants. Please refer to our Terms of Use for any information regarding our disclosure principles.

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