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Monday, January 11, 2010

Morningstar Article on Casual Restaurants

In their January 8th article The Casual Restaurant Bankruptcy Epidemic, Morningstar analyst R.J. Hottovy takes a look at the shaky casual dining segment. The article focuses on the primary risk factors and the tight credit markets. Examples of fallen chains and potential failures highlight the need to remain vigilant with cost control.

This is a sober financial analysis of this industry segment. Like any other Wall Street analysis, the analyst provides his insight into the direction of restaurant stocks publicly traded on major markets. I drilled into the data on Darden (DRI) and found the stock price has increased less than 20% in the most recent 5 year period. This is better than a loss but the 3.7% average annual appreciation probably won't go too far in attracting major investors. Mr. Hottovy expects Darden to weather the storm. He is more negative regarding the chances of Dine Equity (parent company of IHOP and Applebees). Although he would like to see Dine Equity refinance some of their debt, Morningstar rates DIN as a 3 star stock (about average return expectation for the risk level).

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