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

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In a report published Friday, Credit Suisse analyst Jason West upgraded the rating on Darden Restaurants, Inc. (NYSE: DRI) from Neutral to Outperform, 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.

Latest Ratings for DRI

DateFirmActionFromTo
Oct 2017BMO CapitalMaintainsMarket Perform
Oct 2017ArgusDowngradesBuyHold
Oct 2017Longbow ResearchInitiates Coverage OnNeutral

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Posted-In: Credit SuisseAnalyst Color Upgrades Price Target Analyst Ratings

 

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