Market Overview

Darden Restaurants' Q3 Triggers Sell-Side Upgrade

Darden Restaurants' Q3 Triggers Sell-Side Upgrade
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Benzinga's Top Upgrades, Downgrades For December 19, 2018

Darden Restaurants, Inc. (NYSE: DRI), the restaurant operator best known for its Olive Garden and LongHorn Steakhouse chains, reported fiscal third-quarter results Thursday that prompted Stephens to turn bullish on the stock.

The Analyst

Stephens' Will Slabaugh upgraded Darden Restaurants' stock rating from Equal-Weight to Overweight with a price target lifted from $95 to $105.

The Thesis

Darden's Q3 reaffirmed that the company is outperforming the overall restaurant industry, Slabaugh said in a Monday note.

Olive Garden's streak of positive same-store sales growth now stands at 14 consecutive quarters, and the growth was driven by a 0.1-percent traffic gain and a 1.7-percent pricing increase, the analyst said.

Customers are responding well to the Italian-American restaurant chain's everyday value offering, to-go ordering and overall menu simplification, Slabaugh said. 

Longhorn posted 2-percent same-store sales growth, which did fall short of the 3.5 percent Stephens had projected. Nevertheless, it's LongHorn's 20th consecutive quarter of positive same-store sales growth from ongoing penetration in new markets and an overall focus on guest experience, Slabaugh said. 

Darden shares are trading at 16.2x CY18 EPS and 14.9x CY19 EPS — which is a below-market multiple for a restaurant operator whose top brands are expected to post consistent 2-percent same-store sales growth, the analyst said. Darden as a whole is likely to issue beat-and-raise earnings reports moving forward, which should prompt the stock to "regain its premium valuation," he said. 

Price Action

Shares of Darden Restaurants were up 2 percent after the open Monday. 

Related Links:

Argus: Darden Restaurants Among 'Best-Managed' Dining Names

One Analyst Loses His Appetite For Darden Restaurants

Latest Ratings for DRI

Jan 2019Bank of AmericaUpgradesNeutralBuy
Dec 2018BairdMaintainsNeutralNeutral
Dec 2018BTIG ResearchUpgradesNeutralBuy

View More Analyst Ratings for DRI
View the Latest Analyst Ratings

Posted-In: LongHorn Steakhouse Olive GardenAnalyst Color Upgrades Price Target Restaurants Analyst Ratings General Best of Benzinga


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