On Thursday, KeyBanc Capital Markets adjusted its outlook on Darden Restaurants (NYSE:DRI), reducing the price target to $170 from the previous $177, while maintaining an Overweight rating on the stock. The firm's decision comes amid expectations of a slight dip in the company's performance relative to consensus estimates.
The adjustment by KeyBanc was prompted by revised expectations for Darden's fiscal year 2024 and 2025 earnings per share (EPS), as well as same-store sales (SSS) growth forecasts. Based on a blend of proprietary and third-party data, the analyst now projects a modest SSS growth of 0.3% for the fourth quarter of fiscal year 2024 and has lowered the SSS growth estimate for fiscal year 2025 from 1.9% to 1.5%.
Despite the near-term cautious stance, KeyBanc continues to view Darden positively in the long term, citing the company's potential to gain market share, sales drivers, industry-leading scale, and a diversified brand portfolio that is expected to enable the restaurant operator to excel through different economic cycles.
The firm also anticipates that same-store sales growth could see an uptick in fiscal year 2025, particularly due to an increased commitment to national advertising, a strategy that has reportedly been successful for one of Darden's major competitors.
The new price target of $170 set by KeyBanc is based on 18 times the firm's projected earnings per share for fiscal year 2025.
In other recent news, Darden Restaurants has been the focus of revised outlooks from Evercore ISI and Truist Securities due to recent developments. Evercore ISI reduced its price target on Darden to $165, citing a projected slowdown in market share gains, particularly for the Olive Garden brand. The firm also moderated its fiscal year 2025 earnings per share (EPS) estimate for Darden by 2%, aligning it just below the consensus. Truist Securities, on the other hand, adjusted its price target for Darden to $185, following the company's fiscal third-quarter 2024 results.
Darden 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. The company also 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. However, Truist Securities 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.
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