Telsey Advisory Group Bullish On Darden Restaurants Post-Earnings

In a report published Monday, Telsey Advisory Group analyst Peter Saleh upgraded shares of

to Outperform from Market Perform with a price target raised to $77 from a previous $61 following the company's third quarter report. Saleh noted that the company's third quarter earnings per share of $0.99 was "well above" his estimate of $0.84 and an improvement from the $0.70 the company earned in the same quarter a year ago. The analyst added that the outperformance in the quarter was driven by stronger restaurant-level margin and lower SG&A, along with continued initiatives to lower its expense structure and pursuing strategies to monetize its real estate holdings. Saleh continued that restaurant-level margin increased 70 basis points to 22.5 percent due to improvements in labor and restaurant expenses while food and beverage costs increased 70 basis points driven by higher dairy and beef costs. "While we recognize the historically high P/E multiple may be concerning to investors, we believe the multiple is sustainable for the next twelve months as improving sales trends and cost savings drive EPS upside," Saleh wrote. Following the results, Saleh raised his fiscal 2015 and fiscal 2016 earnings per share estimates to $2.49 and $2.89 from $2.29 and $2.56, respectively, given the outperformance demonstrated in the quarter and further cost savings. The analyst also introduced a fiscal 2017 earnings per share estimate of $3.21.