With all the analyst love pouring over the fast-casual dining concept over the last few years, it's easy to forget about the more traditional casual dining chains. While not as flashy as their fast-casual counterparts, some of the companies in this industry are still delivering solid growth at considerably lower valuations.

As such, it may be worth taking another look at the industry. Let's examine the prospects of the three major players, Darden Restaurants (NYSE:DRI), DineEquity (NYSE:DIN), and Brinker International (NYSE:EAT).

Food for thought
There is a reason why analysts are stumbling over themselves to tout the success of the fast-casual dining concept. It is simply growing faster than the casual dining market. 2013 marked the fifth consecutive year of considerably higher traffic in the category, up 8% for the year. Overall, the restaurant category reported flat traffic for the same period. Casual dining reported a traffic decline of 1%. As such, let's see who's outperforming the casual-dining industry.

Hint: It's not Darden. The operator of chains such as Olive Garden and Red Lobster has been struggling with revenue growth for some time now and is currently in the process of spinning off its underperforming Red Lobster business.


Overall profit was down 18% for the latest quarterly report, and there was an 8.8% drop in same-restaurant sales at Red Lobster. So the company is now looking to focus on its Olive Garden and Longhorn Steakhouse chains, which saw a decline of 5.4% and an increase of 0.3%, respectively..

DineEquity seems to be doing a little better. The owner of Applebee's and the iconic IHOP chain has been working on expanding its international footprint in order to boost sales. The company recently delivered an excellent fourth-quarter report with adjusted earnings per share of $0.98, up from $0.83 per share in the same period a year ago. The IHOP chain was the clear winner, with same-restaurant sales up a healthy 4.5% for the period and easily outpacing the family dining category.

Clearly, its first year as a 99% franchised company was a success. To sustain growth, the company is focusing on updating its menu offerings to include more healthy options. It's also making more use of social media as a marketing tool and developing the bar experience to create more personal interactions with guests.

Brinker, for its part, recently made waves with the introduction of tabletop tablets at its Chili's chain. The move in any case piqued analyst interest, with some believing the use of this kind of technology could provide a serious boost to the restaurant industry. While the tablets are not meant to replace servers, tablets so far seem to be reducing waiting times and could in the future provide recommendations and meaningfully streamline the payment process.

Source: www.maggianos.com 

The company's second-quarter 2014 report impressed investors, with adjusted EPS up 18% year over year. Comps looked solid as well. Same-restaurant sales at Maggiano's were up 0.9% year over year, while Chili's rose 0.3% overall and 0.7% at company-owned locations. Fourth-quarter revenue inched up 2.1%, generally beating consensus estimates. Overall, Brinker seems to be more or less outpacing the industry. Let's take a look at valuations.

Valuations and metrics
Darden is the cheapest restaurant operator looking at both price-to-earnings and price-to-sales ratios, but it is also the worst performing of the stocks mentioned here. Brinker and DineEquity trade at comparable trailing P/E ratios. But looking at price-to-sales, DineEquity is considerably more expensive at 2.4 times sales. As a franchising company, margin comparisons are probably not too meaningful; but with an operating margin of 36%, DineEquity does look solid.

The bottom line
Of the three stocks discussed here, Darden seems like the worst bet, underperforming the industry on most metrics. As such, the choice is between Brinker and DineEquity. While DineEquity looks to be the better performer due to its huge same-restaurant growth at IHOP, I prefer Brinker for its slightly lower valuation, solid growth, and its use of new technology to improve the customer experience.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.