On Thursday, Evercore ISI adjusted its outlook on Darden Restaurants (NYSE:DRI), reducing the price target to $165 from $170, while maintaining an In Line rating for the stock. The revision comes as the firm anticipates a deceleration in market share gains for the company, particularly for its Olive Garden brand.
The firm's revised forecast for Darden's fourth-quarter same-store sales (SSS) is now slightly below consensus estimates, with Olive Garden expected to see a 0.5% decline compared to the previously predicted 0.5% increase. This adjustment reflects a series of indicators suggesting a slowdown in Olive Garden's market share growth relative to the industry.
Additionally, Evercore ISI has moderated its fiscal year 2025 earnings per share (EPS) estimate for Darden by 2%, aligning it just below the consensus, due to Olive Garden's SSS projections being lowered to a 1% increase from the earlier 2%. This change is based on the expectation that Olive Garden's SSS will be on par with the casual dining industry in the fourth quarter, as opposed to the 2 percentage point outperformance seen in the third quarter.
The analyst noted that while Olive Garden has been executing well in-store and offers everyday value, there might be a need for more initiatives to drive traffic, such as emailed coupons or advertising, even if it could potentially limit further EBITDA margin expansion, which is currently 200 basis points above the 2019 level.
Despite Darden Restaurants' stock trading at the lower end of its five-year forward price-to-earnings (P/E) range of 16-21 times, Evercore ISI's revised price target of $165 corresponds to approximately 18 times its fiscal year 2025 estimated EPS of $9.46, which represents a 7% year-over-year increase. The consensus EPS estimate stands slightly higher at $9.57.
In other recent news, Darden Restaurants has been making headlines with its fiscal third-quarter 2024 results and plans. The company reported an increase in total sales to $3 billion, marking a 6.8% rise from the previous year, and maintained steady earnings per share at $2.62, despite some industry challenges. Truist Securities has adjusted its price target for Darden Restaurants to $185, following the company's earnings results, but maintains a Buy rating on the stock.
Darden Restaurants continues to outperform industry benchmarks in same-restaurant sales and traffic, even amidst a pullback from lower-income consumers. The company opened 16 new restaurants in the quarter, contributing to 43 new establishments across 22 states in fiscal 2024. Projections for fiscal 2024 total sales hover around $11.4 billion.
Darden plans to open 45 to 50 new restaurants in fiscal 2025, with capital expenditures between $250 million and $300 million. Truist Securities, however, expressed some concerns about Darden's development guidance for the fiscal year 2025, which appears somewhat conservative.
Despite these concerns, Darden's strategic focus on profitable sales growth and maintaining off-premise sales stability is expected to help the company navigate through near-term challenges and continue its market share expansion.
InvestingPro Insights
As Darden Restaurants (NYSE:DRI) navigates market dynamics, it's important to consider some key financial metrics that provide a broader perspective on the company's valuation and performance. According to recent data from InvestingPro, Darden has a market capitalization of $17.57 billion and trades at a price-to-earnings (P/E) ratio of 17.17, which aligns with the Evercore ISI's valuation multiples. The company's revenue growth over the last twelve months as of Q3 2024 stands at 8.53%, indicating steady top-line expansion.
InvestingPro Tips highlight that Darden has consistently rewarded shareholders, raising its dividend for 3 consecutive years and maintaining dividend payments for 30 consecutive years. Moreover, analysts predict the company will remain profitable this year, with profitability sustained over the last twelve months. These factors, along with a high return over the last decade, may interest long-term investors looking for stable income and a track record of growth.
For those seeking a deeper dive into Darden's financial health and future prospects, InvestingPro offers additional tips. To explore these insights and help make more informed investment decisions, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With these tools at hand, investors can better assess whether Darden's current stock performance and Evercore ISI's revised price target align with their investment goals.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.