Sell-Side Analysts React To Olive Garden Parent Company's Earnings Beat

Darden Restaurants, Inc. DRI, best known for its Olive Garden and LongHorn Steakhouse brands, reported an EPS beat and slight revenue miss in its fiscal second quarter while management lifted its outlook higher.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Morgan Stanley's John Glass maintains an Equal-weight rating on Darden Restaurants with an unchanged $112 price target.
• BTIG's Peter Saleh upgraded from Neutral to Buy with a new $119 price target.
• Raymond James' Brian Vaccaro maintains at Market Perform, no price target.
• ‎Tigress Financial Partners' Ivan Feinseth.

Shares of Darden Restaurants were trading lower by 1 percent at $102.76 Wednesday.

Morgan Stanley: Key Takeaways

Darden's earnings report has a few key takeaways, Glass said in a note:

• Olive Garden same-store sales came in better than expected on a 4.3 percent check increase but traffic was down 80 basis points.
• Integration challenges at Cheddar's will take time to resolve.
• Margins improved 20 basis points year-over-year or 40 basis points including marketing.
• Olive Garden off premise growth slowed quarter-over-quarter, but is still north of 10 percent year-over-year.
• Blended comps are likely to be around 2.5 percent in the second half of the fiscal year.

Although not company specific, Glass said Darden's results signals the consumer remains health with no indication of any momentum losses.

BTIG: Concerns Haven't Materialized

It's clear past worries haven't materialized, Saleh said. Specifically, the earnings report showed continued top-line momentum while restaurant margins continue to improve.

Management continues to make the right decisions to boost sales, improve the menu quality and see modest labor deleverage from lapping tax-related workforce investments.

Raymond James: Solid Quarter But Nothing New

Darden reported "solid" earnings but wasn't sufficient to turn bullish on the stock for two main reasons, Vaccaro said.

Olive Garden saw a modest traffic underperformance from a reduction in digital incentive offers and this is likely to continue in the back half of the year. Longhorn and Capital Grille performed better than expected, but this is offset by weaker trends at other brands, especially Cheddar's.

Tigress Financial: Upside Potential To $120 Range

Darden's flagship brand Olive Garden has now reported 17 straight quarters of rising same-store sales, Feinseth said in his daily newsletter. The brand continues to attract customers given a value-based menu and new items while other brands are seeing benefits from strong consumer spending.

Given the continued momentum, investors should continue buying the stock which has upside to the low $120 range.

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Photo credit: Mike Mozart, Flickr