Olive Garden's parent company Darden Restaurants, Inc. (NYSE: DRI) reported Thursday with a top-and-bottom line beat in its fiscal third quarter results and lifted its
full-year 2019 outlook. The following is a roundup of the Street's reaction.
The Analysts
Morgan Stanley's John Glass maintained an Equal-weight rating on Darden
Restaurants with a price target lifted from $112 to $121.
Bank of America Merrill Lynch's Gregory Francfort maintained at Buy with a price target lifted from $120 to $130.
Mizuho Securities' Jeremy Scott maintained at Buy, price target lifted from $125 to $130.
Raymond James' Brian Vaccaro maintained at Market Perform.
Tigress Financial Partners' Ivan Feinseth.
Morgan Stanley: Solid But Slowing Profits
Darden Restaurants benefited in the fiscal
third quarter from superior growth in takeout orders, and non-discounting led to top-line growth, Glass said in a research
report. Profits at Olive Garden and LongHorn were "solid" in the quarter, but the two chains saw a slowdown from the prior quarter
due to higher food costs, the analyst said.
On the other hand, the two other business segments, including dining and "other," showed an acceleration in operating profit
growth, he said.
The company also showed labor leverage for the first time in more than a year, and this should continue —although at lower rates
for the next few quarters before reverting to historical sub-1 percent levels, Glass said. Compared to other restaurant chains that
struggle with profit flow-through, Darden certainly "stands apart," according to Morgan Stanley.
Related Link: Sell-Side
Analysts React To Olive Garden Parent Company's Earnings Beat
BofA: Darden Flexing Its Scale
Data from Knapp-Track shows the casual dining segment slowed down modestly in January and February, but Darden ended its
February quarter with 2.8-percent systemwide comps growth, Francfort said in a research report.
The analyst said there's "not much to pick at" in the quarterly print, although several trends — including 4-percent average
check growth at Olive Garden — are not sustainable over the long term, he said.
Darden's ability to protect margins and simultaneously show strong top-line growth is in "sharp contrast" to casual dining peers
that are mostly struggling in a difficult cost environment, according to BofA.
Mizuho: Company Deserves More Credit
Darden's best-in-class operating fundamentals were reinforced in the quarter and highlighted by a restaurant margin of 23
percent, a figure that rose 40 basis points, Scott said in a research report.
Darden is among the few casual dining chains to upwardly revise its guidance, the analyst said.
The company deserves credit for managing labor pressure and continuing to offer customers value, Scott said. More credit may
be warranted exiting Thursday's report, as labor efficiencies can help drive growth over the next few years and "dissolve
market concerns," according to Mizuho.
Raymond James: Valuation Concerns
Darden's earnings report makes it clear the underlying business trends remain "strong," including holding $300 million of cash
but only needing $125 million to run the business, Vaccaro said in a research report. Yet the stock is already trading at a premium
valuation, with a P/E more than 19 times calendar year and 11.5 times EV/EBITDA, the analyst said.
Both of these metrics are at the higher end of the stock's historical three-year average and near the upper end of
the group of full-service peers, according to Raymond James.
Tigress Recommends Buying
Darden's stock gained nearly 7 percent Thursday after a strong earnings report and a better-than-expected outlook, Feinseth said
in his daily newsletter. Encouragingly, the Olive Garden chain has now shown 17 straight quarters of increasing same-store sales
through a combination of value-based promotions and new menu items, he said.
"I believe upside into the high $120 range exists and continue to recommend purchase," the analyst said.
Price Action
Darden Restaurants stock was up 1.15 percent at $117.44 at the close Friday.
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Latest Ratings for DRI
Date |
Firm |
Action |
From |
To |
Mar 2019 |
Bank of America |
Reiterates |
Buy |
Buy |
Mar 2019 |
Wells Fargo |
Maintains |
Market Perform |
Market Perform |
Mar 2019 |
Mizuho |
Maintains |
Buy |
Buy |
View More Analyst Ratings for
DRI
View the Latest Analyst
Ratings
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