Head-To-Head Review: Darden Restaurants (DRI) & Starbucks Corporation (SBUX)

Darden Restaurants (NYSE: DRI) and Starbucks Corporation (NASDAQ:SBUX) are both mid-cap retail/wholesale companies, but which is the better investment? We will contrast the two companies based on the strength of their institutional ownership, earnings, risk, dividends, valuation, analyst recommendations and profitability.

Risk and Volatility

Darden Restaurants has a beta of 0.24, suggesting that its stock price is 76% less volatile than the S&P 500. Comparatively, Starbucks Corporation has a beta of 0.78, suggesting that its stock price is 22% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent recommendations for Darden Restaurants and Starbucks Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Darden Restaurants 1 14 9 0 2.33
Starbucks Corporation 0 11 18 1 2.67

Darden Restaurants currently has a consensus price target of $87.52, suggesting a potential upside of 7.31%. Starbucks Corporation has a consensus price target of $64.03, suggesting a potential upside of 17.46%. Given Starbucks Corporation’s stronger consensus rating and higher possible upside, analysts clearly believe Starbucks Corporation is more favorable than Darden Restaurants.

Institutional & Insider Ownership

89.6% of Darden Restaurants shares are held by institutional investors. Comparatively, 70.8% of Starbucks Corporation shares are held by institutional investors. 0.6% of Darden Restaurants shares are held by insiders. Comparatively, 3.4% of Starbucks Corporation shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Dividends

Darden Restaurants pays an annual dividend of $2.52 per share and has a dividend yield of 3.1%. Starbucks Corporation pays an annual dividend of $1.00 per share and has a dividend yield of 1.8%. Darden Restaurants pays out 65.1% of its earnings in the form of a dividend. Starbucks Corporation pays out 50.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Valuation and Earnings

This table compares Darden Restaurants and Starbucks Corporation’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Darden Restaurants $7.39 billion 1.36 $975.90 million $3.87 21.07
Starbucks Corporation $22.40 billion 3.51 $5.14 billion $1.97 27.67

Starbucks Corporation has higher revenue and earnings than Darden Restaurants. Darden Restaurants is trading at a lower price-to-earnings ratio than Starbucks Corporation, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Darden Restaurants and Starbucks Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Darden Restaurants 6.60% 26.06% 10.47%
Starbucks Corporation 12.93% 52.82% 21.42%

Summary

Starbucks Corporation beats Darden Restaurants on 14 of the 17 factors compared between the two stocks.

Darden Restaurants Company Profile

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.

Starbucks Corporation Company Profile

Starbucks Corporation (Starbucks) is a roaster, marketer and retailer of coffee. As of October 2, 2016, the Company operated in 75 countries. The Company operates through four segments: Americas, which is inclusive of the United States, Canada, and Latin America; China/Asia Pacific (CAP); Europe, Middle East, and Africa (EMEA), and Channel Development. The Company’s Americas, CAP, and EMEA segments include both company-operated and licensed stores. Its Channel Development segment includes roasted whole bean and ground coffees, Tazo teas, Starbucks- and Tazo-branded single-serve products, a range of ready-to-drink beverages, such as Frappuccino, Starbucks Doubleshot and Starbucks Refreshers beverages and other branded products sold across the world through channels, such as grocery stores, warehouse clubs, specialty retailers, convenience stores and the United States foodservice accounts.

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