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On Friday, BMO Capital Markets adjusted its outlook on Darden Restaurants (NYSE:DRI), increasing the price target to $175 from the previous $165, while retaining a Market Perform rating on the stock. The company, known for its portfolio of restaurant brands, reported earnings per share (EPS) for the first quarter of fiscal year 2025 at $1.75, which fell short of the consensus estimate by $0.08.
This shortfall was attributed to weaker comparable store sales and restaurant margins, which overshadowed the benefits of lower general and administrative expenses and tax rates.
Despite the softer performance in the first quarter of fiscal year 2025, Darden Restaurants confirmed its financial guidance for the entire year. This affirmation comes on the heels of an observed recovery in sales trends during August and September, and the company's renewed focus on proactive sales strategies. One such strategy is a new partnership with Uber (NYSE:UBER) for delivery services, which the company anticipates will contribute to future earnings.
The analyst from BMO Capital expressed a more cautious outlook for fiscal year 2025 earnings, with a slight reduction in expectations. However, the forecast for fiscal year 2026 was raised to account for the projected positive impact of the delivery service partnership.
The decision to elevate the price target to $175 was based on increased confidence in Darden's ability to drive sales, which supports a higher valuation multiple. Nevertheless, the Market Perform rating was maintained due to a balanced view of potential risks and rewards associated with the stock.
Darden Restaurants' strategy to stimulate sales growth, including the new delivery initiative, has provided analysts with a clearer perspective on the company's potential to enhance its financial performance. This clarity has been a key factor in the revised price target, signaling a cautious yet optimistic view of the company's direction.
In other recent news, Darden Restaurants has been the subject of several financial adjustments following its first-quarter earnings report. Despite falling short of earnings per share expectations, Darden reiterated its full-year guidance.
Raymond James raised the price target for Darden Restaurants to $187, citing stronger quarter-to-date trends and the initiation of a first-party delivery service in partnership with Uber. TD Cowen also increased the stock's price target to $165, maintaining a Hold rating. Jefferies maintained an Underperform rating but increased the price target to $136.
In addition, Darden reported a slight 1% increase in sales, reaching $2.8 billion. The company also announced the future acquisition of Chuy's, which is expected to have a neutral impact on earnings per share. Other financial firms such as Evercore ISI upgraded Darden's stock to "Outperform" and raised the price target to $205. Piper Sandler maintained a neutral stance on Darden with a $177 price target, and Baird raised their target to $172.
InvestingPro Insights
As Darden Restaurants (NYSE:DRI) navigates through its fiscal challenges and strategic initiatives, InvestingPro data and tips provide an additional layer of insight into the company's financial health and market position. Notably, Darden Restaurants has a market capitalization of approximately $20.16 billion and a P/E ratio of 18.33, indicating a robust valuation by investors. The P/E ratio adjusted for the last twelve months as of Q4 2024 stands at 19.66, suggesting a slightly higher valuation in the more recent context.
InvestingPro Tips reveal that Darden Restaurants has consistently maintained dividend payments for 30 consecutive years, which reflects a strong commitment to returning value to shareholders. Additionally, the company's dividend yield as of 2024 stands at 3.52%, which is competitive within the industry. However, analysts have recently revised their earnings expectations downwards for the upcoming period, indicating potential headwinds that investors should consider.
These insights, along with the 9 analysts' downward revisions and the company's trading at a high Price/Book multiple of 9.13 as of the last twelve months ending Q4 2024, offer a nuanced view of Darden Restaurants' investment profile. For those interested in further analysis, InvestingPro provides additional tips, which can be found at InvestingPro, to help investors make informed decisions.
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