Investors should buy Darden Restaurants due to the uncertain future for the U.S. restaurant industry during the coronavirus pandemic, CNBC’s Jim Cramer said Thursday.
Shares of the Olive Garden owner soared more than 8% on Thursday, after it reported per-share earnings that outpaced Wall Street expectations. And the “Mad Money” host said he believes the stock has room to go higher because Washington has yet to agree on another round of Covid-19 aid, leaving millions of small businesses across the nation in precarious financial footing.
“Unfortunately, without some help from Congress, you better believe most independent restaurants will not be able to hold out. I know mine can’t,” said Cramer, who owns Bar San Miguel in Brooklyn, New York.
“[It’s] bad news for the economy, for this wholesale decline of all restaurants, but great news for publicly traded companies with the scale to thrive in this environment. That’s why I think Darden’s stock is still a buy, even after today’s run,” he added.
Darden, which generates about half of its revenue from Olive Garden, has the balance sheet to be able to outlast the pandemic and all of its related business challenges, such as capacity restrictions on indoor dining and the need to pivot to more digital sales and delivery, Cramer said.
“We learned today that they can shut down half their tables and still make money — so much money that they actually reinstated the dividend and also repaid a $270 million term loan that would strangle most smaller enterprises,” Cramer said. “These guys are on pace to be able to do almost exactly as well as they did before the pandemic.”
Darden’s stock is down about 10% so far in 2020, but it has rallied significantly of its coronavirus-induced bottom of $26.15 on March 18. Based on Thursday’s close of $97.31, shares are up about 270% from that bottom.
“The strength in the stock of Darden, it should terrify you. Darden’s winning because its private competitors can’t cope with the Covid-19 economy,” Cramer said. “We’re headed for a world where, if you want to go out for dinner, you won’t have many options other than some big chains with deep pockets. Olive Garden will be the height of fine dining.”
An order of breadsticks from a Darden Restaurants Inc. Olive Garden
Bloomberg | Getty Images
With all of the uncertainty around the pandemic and potential government aid for small business, Cramer said it’s hard to apply standard valuation metrics such as a price-to-earnings ratio to Darden. “All I know is the stock deserves to go higher, and the longer the pandemic goes on, the more attractive it gets,” he said.
Cramer said Darden underscores the duality of the U.S. economy during the health crisis. Millions of Americans have lost their jobs and small businesses have gone under, yet Wall Street has rebounded from its sell-off earlier this year and went on to set a series of fresh record highs.
Although September has been a rough month for stocks,