Olive Garden Gaining Market Share, A Bright Spot For Darden Restaurants

Expectations

Ahead of the release of its first-quarter earnings due on October 4, the firm said it believes the first quarter is the peak for fiscal year 2017 earnings per share growth. Specifically, the firm estimates first quarter earnings per share of $0.84 per share, representing 23 percent year-over-year growth, above the consensus estimate.

The firm estimates same store sales results of 1.1 percent growth for Olive Garden, below the 1.5 percent Street estimates, although it maintains the 200+ basis point-gap with the industry.

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Investor Focus

Wells Fargo said investors are likely to focus on relative and absolute same store sales results, as industry trends point to weakness, the updated guidance and the management's take on the health of the U.S. consumer. The firm expects the company to reiterate its 2017 earnings per share guidance of $3.80–$3.90.

On Sidelines

As such, Wells Fargo said it remains on the sidelines, given continued industry top-line challenges and its expectation that earnings growth will decelerate going forward, as the company reinvests the cost savings.

The firm also feels the casual dining segment valuation re-rating, which is near two-year lows, represents an additional hurdle for appreciation of Darden's shares.

Wells Fargo has a $66 to $70 valuation range for the company's shares.

The shares of Darden Restaurants were down 1.42 percent at $61.58 at last check.

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