Analysts at Guggenheim Partners had not rescinded their initial outlook that the restaurant industry would struggle to structurally grow margins as long as the unemployment rate stayed below 4%.
But the firm said Thursday it was betting on one group to outperform.
The Darden Restaurant Analyst: Guggenheim’s Gregory Francfort initiated Darden Restaurants, Inc. DRI with a Buy rating, and set a $170 price target on the stock.
“We believe Darden is one of the best-managed restaurant companies with scale advantages that allow it to create value through M&A, out-compete full-service peers on price, and drive back-of-house synergies,” Francfort said Thursday in a note to investors.
“Darden should continue to take market share from competitors, in our view, supporting the top-line growth amid a modestly tougher consumer backdrop while cost inflation headwinds should ease over the next six months, helping to stabilize margins.”
Olive Garden, which represents 53% of Darden’s segment EBIT, has grown its store base by 52% and revenue by 72%, Francfort mentioned, outperforming the industry on customer traffic per unit by 14% cumulatively.
Guggenheim said it expected Darden could grow units organically by upwards of 3%, with low single-digit, same-store sales growth that it believed could be leveraged to a maximum 15% of shareholder return.
Francfort said the key risks to the investment were a recession and continued labor issues.
DRI Price action: Shares of DRI are trading 1.20% higher to $148.75 Thursday at publication, according to data from Benzinga Pro.
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