On Thursday, Jefferies maintained its Underperform rating on Darden Restaurants (NYSE:DRI) but increased the price target to $150 from the previous $136. The adjustment follows the company’s fiscal second quarter earnings per share (EPS) that met expectations, driven by solid same-store sales (SSS) at Olive Garden and LongHorn Steakhouse. The performance was somewhat offset by higher restaurant labor margin (RLM) and general & administrative (G&A) expenses.
The firm’s F25 EPS guidance was reiterated, taking into account higher sales projections, which now include the recent acquisition of Chuy’s. The analyst noted an improved sentiment regarding the consumer and demand environment, although the same-store sales guidance remains unchanged.
The commentary suggested that while Olive Garden’s underlying trends seem to be stabilizing, particularly with upcoming laps and innovations planned for January, a cautious outlook is advisable due to the current dynamics in the value dining sector.
With revenue growth of 5.98% and a market capitalization of $21.68B, the company maintains a solid dividend yield of 3.5%. InvestingPro subscribers have access to 10 additional key insights about Darden’s financial health and growth prospects.
The revised price target reflects a view that the risk/reward profile for Darden Restaurants is skewed to the downside. Despite acknowledging the positive developments, such as the stabilization of trends at Olive Garden, Jefferies advises a conservative stance.
The firm’s analysis indicates that the potential risks outweigh the possible benefits for investors at this time. According to InvestingPro’s comprehensive analysis, the company maintains a "GOOD" overall financial health score, though 12 analysts have recently revised their earnings estimates downward.
Darden Restaurants’ financial outlook includes the impact of the Chuy’s acquisition, which is expected to contribute to sales growth. However, the firm’s unchanged same-store sales forecast and the caution expressed over the broader market conditions suggest that challenges remain for the company.
In summary, while Darden Restaurants has shown some positive operational performance, Jefferies’ updated assessment maintains a cautious perspective on the stock’s future performance, with the new price target reflecting this stance.
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