Guggenheim Initiates Darden Restaurants With A Buy: 'Good Times, Great Stock, Olive Garden'

Analysts at Guggenheim Partners had not rescinded their initial outlook that the restaurant industry would struggle to structurally grow margins as long as the unemployment rate stayed below 4%.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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Photo: Jonathan Weiss via Shutterstock