Contrasting Darden Restaurants (NYSE:DRI) & Main Street Capital (NYSE:MAIN)

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Darden Restaurants (NYSE:DRI) and Main Street Capital (NYSE:MAIN) are both retail/wholesale companies, but which is the superior stock? We will contrast the two businesses based on the strength of their profitability, institutional ownership, earnings, risk, valuation, analyst recommendations and dividends.

Analyst Ratings

This is a summary of current ratings and recommmendations for Darden Restaurants and Main Street Capital, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Darden Restaurants 1 9 13 0 2.52
Main Street Capital 0 2 2 0 2.50

Darden Restaurants presently has a consensus target price of $126.13, suggesting a potential upside of 4.51%. Main Street Capital has a consensus target price of $39.25, suggesting a potential downside of 10.59%. Given Darden Restaurants’ stronger consensus rating and higher probable upside, equities analysts plainly believe Darden Restaurants is more favorable than Main Street Capital.

Profitability

This table compares Darden Restaurants and Main Street Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Darden Restaurants 8.38% 31.61% 12.89%
Main Street Capital 65.74% 10.57% 6.18%

Dividends

Darden Restaurants pays an annual dividend of $3.52 per share and has a dividend yield of 2.9%. Main Street Capital pays an annual dividend of $2.46 per share and has a dividend yield of 5.6%. Darden Restaurants pays out 60.5% of its earnings in the form of a dividend. Main Street Capital pays out 94.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Darden Restaurants has increased its dividend for 2 consecutive years and Main Street Capital has increased its dividend for 8 consecutive years. Main Street Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

91.3% of Darden Restaurants shares are owned by institutional investors. Comparatively, 22.4% of Main Street Capital shares are owned by institutional investors. 0.5% of Darden Restaurants shares are owned by company insiders. Comparatively, 5.4% of Main Street Capital shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Risk & Volatility

Darden Restaurants has a beta of 0.34, indicating that its share price is 66% less volatile than the S&P 500. Comparatively, Main Street Capital has a beta of 0.82, indicating that its share price is 18% less volatile than the S&P 500.

Earnings & Valuation

This table compares Darden Restaurants and Main Street Capital’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Darden Restaurants $8.51 billion 1.75 $713.40 million $5.82 20.74
Main Street Capital $233.35 million 11.88 $168.21 million $2.60 16.88

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

Summary

Darden Restaurants beats Main Street Capital on 11 of the 17 factors compared between the two stocks.

About Darden Restaurants

Darden Restaurants, Inc., through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. As of May 27, 2018, it owned and operated approximately 1,746 restaurants under the Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen, Yard House, The Capital Grille, Bahama Breeze, Seasons 52, and Eddie V's brands. The company was founded in 1968 and is based in Orlando, Florida.

About Main Street Capital

Main Street Capital Corporation is a business development company specializing in long- term equity and debt investments in small and lower middle market companies. The firm focuses on investments in, subordinated loans, private equity, venture debt, mezzanine investments, mature, mid venture, industry consolidation, later stage, late venture, emerging growth, management buyouts, change of control transactions, ownership transitions, recapitalizations, strategic acquisitions, refinancing, business expansion capital, growth financings, family estate planning, and other growth initiatives primarily for later stage businesses. It invests in consumer discretionary, consumer staples, energy, healthcare, industrials, information technology, manufacturing, media, materials, telecommunication services, and utilities sectors. It does not seek to invest in start-up companies or companies with speculative business plans. It seeks to invest in traditional or basic businesses. The firm primarily invests in companies based in the Southern, South Central, and Southwestern regions of the United States but also considers other domestic investment opportunities. It typically invests between $2 million and $75 million in equity and $5 million to $50 million in debt, revenue between $10 million and $150 million, enterprise value between $3 million and $50 million, and EBITDA between $1 million and $20 million. The firm seeks to charge a fixed interest rate between 12 percent and 14 percent, payable in cash, in case of its mezzanine loan investments. The firm typically invests in the form of term debt with equity participation and/or direct equity investments. It prefers to maintain fully diluted minority and majority equity positions in its portfolio companies of 5 percent to 50 percent, and may have controlling interests in some instances. The firm also co-invests with other investment firms. It seeks to exit its debt investments through the repayment of the investment from internally generated cash flow and/or refinancing within a period of three to seven years. It participates in warrants, PIK (Payment in Kind) interest, convertible securities, junior secured or unsecured, senior secured debt, unitranche debt, equity related, common equity, and preferred equity. Main Street Capital Corporation was incorporated on March 9, 2007 and is based at Houston, Texas.

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