Darden Restaurants Q4 Results Previewed By Baird

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Baird maintains its Neutral rating on the shares of
Darden Restaurants, Inc. DRI
ahead of the fourth-quarter results announcement. The brokerage has a price objective of $70 on the stock. The company would report its fourth-quarter financial numbers on June 30.

Baird analysts led by David Tarantino told their clients in a research note, "We have been highly encouraged by the improvement in operating momentum that DRI has delivered over the past several quarters; however, with respect to the stock, our positive view of DRI's internal fundamentals is being tempered by valuation (NTM EV/EBITDA 8.9X) and some concerns about the recent choppiness in broader casual dining industry trends."

The analysts expect comps to come in either close to or slightly below the estimations in the fourth quarter. However, they are expecting the company to deliver earnings either at or above estimations due to positive cost dynamics.

The brokerage said that it was comfortable in calling for the fourth-quarter earnings at or above predictions due to the prospects on margin assumption to demonstrate higher EBIT margin. The analysts' confidence is because of the favorable margin outlook supported by expected deflations in commodity apart from continued gains from cost control measures.

Related Link: Tigress Financial Upgrades Darden Restaurants To Buy

The analysts concluded by indicating, "We still think our EPS estimate has an upward bias based on potential for cost savings initiatives (carryover benefits from F2016 reductions plus incremental $30-40 million in 2017E) and benign commodity costs (beef deflation) to support EBIT near/above our +7 percent assumption (long-term target +7–10 percent)."

At time of writing, Darden shares were down 2.98 percent on the day at $64.85.

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Posted In: Long IdeasPrice TargetPreviewsReiterationRestaurantsAnalyst RatingsTrading IdeasGeneralBairdDavid Tarantino
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