In the search for companies with stable business models, the full-service restaurant industry contains a few companies that are worth a closer look.  American consumers kept a tight lid on their spending in 2012, due to a number of economic tailwinds, including the uncertain tax landscape and the fiscal cliff.  As a result, is there value in the sit-down restaurant category?

Darden Restaurants, Inc. (NYSE:DRI) operates full-service restaurants in the United States and Canada.  Its restaurants include the popularly known Red Lobster, Olive Garden, and LongHorn Steakhouse brands.  In December, Darden reported its fiscal second quarter profit fell 37%.  Same-restaurant sales fell at all three of its major chains.  Prior to the release of its second quarter results, Darden lowered its full-year sales guidance due to the poor quarter.  Overall sales did rise just above analyst expectations.  Investors did not take the results well.  Shares traded as high as $57 per share before the earnings announcement.  Since then, the stock has taken a tumble down to its current level of $45.  As a result, Darden now trades for a very reasonable trailing price-to-earnings ratio of 13.  Darden is committed to returning cash to shareholders, having raised its dividend every year since 2007.  The most recent increase was more than 16%, and the stock now yields greater than 4.25%.

DineEquity Inc (NYSE:DIN) is a $1.3 billion company that holds the Applebee’s and IHOP restaurants.  In contrast to Darden, DineEquity had a great run in 2012.  Diluted earnings per share during the first nine months more than doubled from the prior year.  As a result, the stock skyrocketed more than 70% in 2012.  However, it’s worth noting that the bulk of the increased profits were due to a gain on a disposed asset and lowered expenses.  Total revenues actually dropped 17% during the first three quarters versus 2011.  DineEquity doesn’t pay a dividend, so it would be prudent for investors to wait for a better entry point, or at least confirmation that the company’s sales get back on the right track.

Bob Evans Farms Inc (NASDAQ:BOBE) has a market value of $1.2 billion and owns the Bob Evans and Mimi’s Café brands.  Bob Evans reported sales inched up about a percent over the first half of 2012, while diluted earnings per share declined nearly 12% as a result of higher operating expenses.  The company has raised its dividend annually since 2007, and yields roughly 2.5% at current prices.  Like DineEquity, Bob Evans had a great 2012, rising more than 20% during the year and now trades at its 52-week high.  The stock trades for a trailing P/E ratio in the high teens.

The Bottom Line

Each of these three full-service restaurant chains are profitable businesses.  However, it appears that Darden is the most attractively valued of the three.  Darden offers new investors a significantly higher dividend yield that its peers and a more conservative valuation.  Although each company had some troubles in 2012, shares of Darden did not perform nearly as well as DineEquity and Bob Evans Farms.  The risk profile presented by the soaring stock prices of the latter two companies should give investors pause before jumping in.

The article Which Full-Service Restaurant Stock Is Attractively Valued? originally appeared on Fool.com and is written by Robert Ciura.

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