Cramer kept going on his private equity "buyout candidate" for the current environment. Buying a company solely for the sake of hoping that they get acquired is a stratgey that can hurt your pocketbook if you are wrong, and he is violating his old mantra of not just looking for buyout candidates. We pick our own buyout targets, but we want to see that the company is either great on its own or can be turned fairly easily with new management or a tweak to strategies.
His pick tonight is Darden (DRI-NYSE), which owns Red Lobster and Olive Garden. It owns 60% of the land underneath the restaurants, and Cramer thinks it can fetch a 20% premium from current prices.
The forward multiples on this one aren’t ridiculous, but they aren’t massively cheap and the company isn’t growing EPS at a fast clip. If you go back and look at the cash flows basis it trades at only about 8-times cash flows, so any savings the company could make would turn thisto a cheap company. Its current P/E ratio for projected earnings is roughly 17.1, which is in the doable range even if it isn’t screaming cheap-cheap. This one closed out at $40.76 and traded up to $41.28 in after-hours trading. The 52-week trading range is $32.91 to $44.43, yet that is also essentially the all-time highs. It does have some smaller and newer brands that could be spun-off, but this one doesn’t seem as much of a homerun as other restaurants already acquired. Since so many restaurants have been acquired this one is doable, but there might be easier deals still left out there that aren’t as large.
Jon C. Ogg
April 24, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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