Analyzing Darden Restaurants (NYSE:DRI) and Aramark (NYSE:ARMK)

Aramark (NYSE:ARMK) and Darden Restaurants (NYSE:DRI) are both large-cap consumer discretionary companies, but which is the superior business? We will contrast the two businesses based on the strength of their institutional ownership, profitability, earnings, risk, dividends, valuation and analyst recommendations.

Earnings and Valuation

This table compares Aramark and Darden Restaurants”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Aramark	$18.51 billion	0.75	$326.39 million	$1.43	36.70
Darden Restaurants	$13.37 billion	1.91	$1.21 billion	$10.23	22.05

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

Insider and Institutional Ownership

93.6% of Darden Restaurants shares are owned by institutional investors. 2.8% of Aramark shares are owned by company insiders. Comparatively, 0.7% of Darden Restaurants shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Risk and Volatility

Aramark has a beta of 1.1, indicating that its stock price is 10% more volatile than the S&P 500. Comparatively, Darden Restaurants has a beta of 0.65, indicating that its stock price is 35% less volatile than the S&P 500.

Profitability

This table compares Aramark and Darden Restaurants’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Aramark	1.93%	17.68%	4.21%
Darden Restaurants	8.85%	58.64%	9.56%

Analyst Ratings

This is a breakdown of current recommendations and price targets for Aramark and Darden Restaurants, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Aramark	0	2	13	0	2.87
Darden Restaurants	0	9	16	0	2.64

Aramark currently has a consensus price target of $69.25, indicating a potential upside of 31.94%. Darden Restaurants has a consensus price target of $232.82, indicating a potential upside of 3.23%. Given Aramark’s stronger consensus rating and higher possible upside, analysts clearly believe Aramark is more favorable than Darden Restaurants.

Dividends

Aramark pays an annual dividend of $0.48 per share and has a dividend yield of 0.9%. Darden Restaurants pays an annual dividend of $6.48 per share and has a dividend yield of 2.9%. Aramark pays out 33.6% of its earnings in the form of a dividend. Darden Restaurants pays out 63.3% 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. Aramark has increased its dividend for 1 consecutive years and Darden Restaurants has increased its dividend for 4 consecutive years. Darden Restaurants is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Darden Restaurants beats Aramark on 10 of the 17 factors compared between the two stocks.

About Aramark

Aramark provides food and facilities services to education, healthcare, business and industry, sports, leisure, and corrections clients in the United States and internationally. It operates through two segments, Food and Support Services United States, and Food and Support Services International. The company offers food-related managed services, including dining, catering, food service management, and convenience-oriented retail services; non-clinical food and food-related support services, such as patient food and nutrition, retail food, environmental services, and procurement services; and plant operations and maintenance, custodial/housekeeping, energy management, grounds keeping, and capital project management services. It also provides on-site restaurants, catering, convenience stores, and executive dining services; beverage and vending services; and facility management services comprising landscaping, transportation, capital program management, payment services, and other facility consulting services relating to building operations. In addition, the company offers concessions, banquet, and catering services; retail services and merchandise sale, recreational, and lodging services; and facility management services at sports, entertainment, and recreational facilities. Further, it offers correctional food; and operates commissaries, laundry facilities, and property rooms. It primarily serves business and industry, sports, leisure and corrections, education, healthcare, public institutions, manufacturing, transportation, service, and other industries. The company was formerly known as ARAMARK Holdings Corporation. Aramark was founded in 1959 and is based in Philadelphia, Pennsylvania.

About Darden Restaurants

Darden Restaurants, Inc., together with its subsidiaries, owns and operates full-service restaurants in the United States and Canada. It operates under Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V’s Prime Seafood, and Capital Burger brand names. Darden Restaurants, Inc. was incorporated in 1995 and is based in Orlando, Florida.