Jefferies raises Darden Restaurants price target to $165

On Thursday, Jefferies maintained an Underperform rating on Darden Restaurants (NYSE:DRI) while increasing the price target from $150.00 to $165.00. The firm’s analysts’ cautious stance aligns with InvestingPro data showing the stock trading near its 52-week high of $203.12 and currently appearing overvalued based on Fair Value analysis. While there have been improvements in demand at Olive Garden, the potential for further upside may be constrained, especially with 9 analysts recently revising their earnings expectations downward. They noted that the ramp-up of UberDirect and delivery services, which is expected to expand to other brands over time, is likely to be more modest than anticipated.

The analysts at Jefferies expressed concern over the current valuation of Darden Restaurants, which they believe reflects an overly optimistic expectation of same-store sales (SSS) and traffic outperformance. Trading at a P/E ratio of 22.57x and showing moderate revenue growth of 5.14%, the $23.35 billion restaurant chain faces scrutiny in an uncertain and potentially tougher macroeconomic and consumer environment. For deeper insights into Darden’s valuation metrics and growth potential, InvestingPro subscribers can access comprehensive analysis and over 10 additional key insights. They pointed out that competition based on absolute price points is likely to continue to influence traffic share in the short term.

The revised price target of $165 reflects a 9.5 times multiple of Jefferies’ increased calendar year 2026 EBITDA estimate, which includes the impact of a 53rd week. The analysts emphasized that the risk/reward balance for Darden Restaurants’ stock is skewed to the downside, justifying the continuation of the Underperform rating.

Darden Restaurants, the parent company of Olive Garden and other brands, has been navigating a challenging landscape marked by changing consumer behaviors and economic pressures. The company’s efforts to adapt through delivery partnerships and other initiatives are being closely watched by analysts and investors alike.

The update from Jefferies on Darden Restaurants’ stock comes as the restaurant industry grapples with various challenges, including labor shortages, supply chain disruptions, and inflationary pressures. Despite these headwinds, the company has maintained its dividend payments for 31 consecutive years, demonstrating financial resilience. The firm’s analysis provides investors with a perspective on the company’s performance potential and market positioning in the coming years. For a complete assessment of Darden’s financial health and future prospects, investors can access the detailed Pro Research Report available on InvestingPro.

In other recent news, Darden Restaurants reported its third-quarter fiscal 2025 earnings, posting an earnings per share (EPS) of $2.80 and revenue of $3.2 billion, both slightly below analyst expectations. Despite these minor shortfalls, the company saw a 6.9% increase in EPS compared to the same quarter last year. This performance has not deterred investor confidence, as evidenced by a 7.5% rise in the company’s stock following the earnings announcement. Darden’s strategic initiatives, including the acquisition of Chuy’s, contributed to a significant 20.2% rise in sales in its "Other Business" segment. Looking ahead, Darden has provided guidance for the fourth quarter of fiscal 2025, projecting total sales between $3.23 billion and $3.26 billion and adjusted diluted EPS ranging from $2.88 to $2.95, slightly above analyst forecasts. Additionally, Citi has raised its price target for Darden Restaurants to $229, maintaining a Buy rating, citing strong results and a positive outlook. Truist Securities also reiterated a Buy rating with a price target of $212. Darden plans to open 60-65 new restaurants in fiscal 2026, with significant capital expenditures allocated for new establishments, maintenance, and technology.

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