UPDATE: J.P. Morgan Reiterates Neutral Rating, Raises PT on Darden Restaurants Following 4Q EPS

In a report published Monday, J.P. Morgan analyst John Ivanko reiterated a Neutral rating on

, and raised the price target from $45.00 to $50.00. In the report, J.P. Morgan noted, “Darden reported 4Q EPS of $1.01 vs. our $0.99 and consensus of $1.04. As generally expected, the company outperformed on same store sales at 2.2% blended vs. our down 0.3% and implied guidance of -0.5% to 1.5%, but this came through aggressive value, as mix was -100bps and restaurant margins were 10bps lower than expected (down 200bps y/y). Moreover, despite comp/revenue growth at Olive Garden and Red Lobster, operating profit dollars and margins declined. We continue to see negative check and restaurant level margin pressure as real risks, matched with a tepid cash flow profile in the near term despite necessary reductions to unit growth capex. Our F14E EPS is $3.03, vs. a revised implied range of $2.98-3.05 (negative 3 to 5% EPS growth y/y), including a net $0.33 of costs from incremental incentive and health care expense partly offset by lower y/y Yardhouse integration expense. The annualized dividend is now $2.20 (raised 10% y/y) for a 4.4% yield, and represents 90% of $310m in F14 FCF or a relatively high 70% estimated dividend payout ratio. Other companies in the space such as Cheesecake Factory and Brinker have lower dividends at 1.2% and 1.7% respectively, but have FCF yields of 4-7% to support much higher payments. Further, Darden's net debt/F14E EBITDA of 2.5x warrants the company begin to pay down – as opposed to increase – debt, which could be used as a lever to enhance equity returns at other casual dining companies.” Darden Restaurants closed on Friday at $50.12.