UPDATE: Wunderlich Raises PT on Darden Restaurants on Management Plan

In a report published Tuesday, Wunderlich Securities analyst Robert Derrington maintained its Hold rating on Darden Restaurants, Inc. DRI raising price target to $54.00.

According to the report, “We reiterate our Hold rating on Darden (DRI) following its weaker-than-expected Q2F14 (Nov) results and risk of further volatility to come. Along with its earnings release, management announced a plan to separate its struggling Red Lobster division through a sale or shareholder spin-off. Despite that, activists are saber-rattling for greater change including separation of its struggling brands (Red Lobster, Olive Garden) from its growth-oriented Specialty Restaurant Group (SRG), and establishing a REIT for its properties. Given the distractions of further change and volatility in its core businesses, we caution that our revised, lowered projections could vary materially. We are modestly lifting our PT to $54.00 from $50.00; we reiterate our Hold rating given Darden’s volatile operating trends.”

Some highlights from the report included:

-”Along with Darden's weak fiscal Q214 (Nov) results, management announced an aggressive plan designed to: 1) separate its struggling Red Lobster division through sale or spin-off; 2) pare back development, acquisitions and capex spending; 3) enact further cost-saving initiatives and mngt. compensation; and 4) maintain its quarterly dividend.
-”Activists Barrington Capital (2.8%) and Starboard Value (5.6%) have taken positions in DRI and argue that management's plan doesn't go far enough to improve shareholder value.”
-”While DRI could drift higher on optimistic valuation exercises, we resist chasing DRI on our belief that pending a sustained lift in "profitable SSS" for both OG and RL, sustaining those levels could prove elusive.”

DRI closed Monday at $54.35.