Darden' Clear Visibility & Realistic Margin View Prompt This Analyst To Upgrade Stock & Hike Price Target By 19%

  • Wedbush analyst Nick Setyan upgraded Darden Restaurants Inc DRI from Neutral to Outperform rating and raised the price target from $134 to $160.
  • The analyst’s Q2 checkpoints to same-store sales growth were in line-to-above at both OG and LH.
  • The analyst said positive callouts at both concepts included improving guest counts, sustained levels of off-premise sales, a seasonal sales lift heading into the holidays, and improved staff retention levels.
  • The analyst’s largest category-wide concern is that as price increases accelerate to recoup category-wide inflation-driven unit-level margin declines, transaction declines may accelerate.
  • As menu pricing accelerates while inflation is decelerating, the favorable gap versus grocery that has somewhat shielded casual dining price increases will narrow, and potentially close (even reverse) by the middle of calendar 2023.
  • In such an environment, while Darden is also taking incremental price increases, the analyst expects total menu pricing to remain below peers.
  • The analyst views the declines in marketing/promotional activity since 2020 as incrementally reversible should the need arise and/or inflation allow.
  • Unlike many of its peers, the analyst views the company’s margin expectations as realistic.
  • Given a relatively high degree of visibility into near-term comp and margin trends and the expectation for accelerating market share gains ahead, the analyst believes such a price target premium is appropriate.
  • The company will report Q2 results before the market opens on Friday, December 16th.
  • Also ReadDarden Restaurants' Portfolio Is Better Positioned Than Most, Says This Analyst
  • Price Action: DRI shares are trading lower by 0.22% at $144.72 on the last check Wednesday.
  • Photo Via Company
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