Credit Suisse Upgrades Darden Restaurants, Says 'Structural Upside Rolls Into View'

In a report published Friday, Credit Suisse analyst Jason West upgraded the rating on Darden Restaurants, Inc. DRI from Outperform to Neutral, while raising the price target from $69 to $77.

Analyst Jason West believes that Darden is poised for significant EPS growth, as it implements "wide-ranging improvements in operations, the cost structure, and capital efficiency." The "potential bull-case" estimate is for earnings to reach about $4.60 by FY17, which is roughly 40 percent higher than the current consensus.

In the report Credit Suisse noted the factors that are expected to contribute to the bull-case EPS as:

• About 50c EPS upside by FY17 could from additional cost-savings
• Approximately 35c could be added from real estate monetization
• About 20c upside from a turnaround in Olive Garden sales, with there being "signs of traction emerging" after several years of underperformance
• Roughly 10c could be added from moderating commodity inflation

"Assuming the multiple compresses to ~18x on the improved earnings base, this suggests a bull-case share price of ~$84, or an ~28% total return one yr. out (incl. 3.3% div. yield). However, we often find that these situations can overshoot to the upside (and downside) as earnings momentum and sentiment shifts," West added.