On the four Ms, Darden Restaurants earns 74 for management and 66 for moat. The management score rests on a return on invested capital of 13.1% and a gross margin of 69.4% — figures that describe a business earning a respectable return on what it employs. The balance sheet carries debt at 2.74x equity, which magnifies both the returns above and the risk beneath them.
Three independent anchors set the price worth paying. Growth is modelled at 12.9% a year, the rate measured from the filings. The exit multiple assumed is 22.9x. That produces an intrinsic value of $194.90, a 10-CAP price of $111.50 and a payback time price of $160.15, with the value zone set at the highest of the three, $160.15. Today's price of $197.45 sits 23% above it.
A wonderful business at the wrong price is still the wrong price. Darden Restaurants scores well on the business and poorly on the entry point, which is the most common shape in a long bull market.
| Price | $197.45 |
| Market cap | $22.6B |
| P/E ratio | 19.3x |
| Return on invested capital | 13.1% |
| Gross margin | 69.4% |
| Debt to equity | 2.74x |
| Free cash flow yield | 4.8% |
| Growth rate used | 12.9% |
| Growth rate measured | 13.0% |
| Exit multiple assumed | 22.9x |
| Company | Moat | Buy price |
| Restaurant Brands Intl. (QSR) | 54 | $53.50 |
| Yum China Holdings Inc (YUMC) | 58 | $36.52 |
| Domino's (DPZ) | 67 | $207.33 |
| Yum! Brands Inc. (YUM) | 67 | $73.33 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Darden Restaurants rather than accepting ours.