On Tuesday, BMO Capital Markets adjusted its outlook on Darden Restaurants (NYSE:DRI), reducing the price target to $165 from $175, while retaining a Market Perform rating on the stock.
The firm anticipates challenges for the company, citing several factors that could weigh on its financial performance.
The analyst from BMO Capital expressed concerns about the potential for Darden's earnings per share (EPS) to fall short of consensus expectations in the second quarter of fiscal year 2025 (FY2Q25) and possibly in subsequent periods. This outlook also extends to the company's full-year guidance for FY25. The downward revision of the price target and EPS estimates comes ahead of Darden's FY2Q25 earnings release scheduled for next week, which now includes considerations for the impact of Chuy's in their financials.
Darden, the parent company of popular chains such as Olive Garden, is facing sustained pressure on comparable sales across its portfolio. The analyst noted that Olive Garden's trends may have returned to declines after a temporary boost from promotional offers like the Never Ending Pasta Bowl.
Additionally, the partnership with Uber (NYSE:UBER) Eats is not expected to significantly contribute to Olive Garden's performance in the upcoming quarters. The minimal impact of this collaboration is part of the rationale behind the revised price target and earnings expectations.
BMO Capital also believes that Darden Restaurants should be valued at a modest discount compared to its historical averages due to its softer comparable sales performance relative to the industry.
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