On Friday, BofA Securities adjusted its outlook on Darden Restaurants (NYSE:DRI) shares, increasing the price target to $185 from $180, while reiterating a Buy rating on the stock.
The firm's analysis indicates that LongHorn Steakhouse, a Darden brand, is currently performing strongly in the casual dining sector, surpassing industry averages in both sales and transaction growth.
LongHorn's sales have exceeded the industry by 480 basis points (bps), and its transaction growth by 430 bps. This success is attributed to customers recognizing the value of steak as a central menu item and LongHorn's exceptional food and service quality.
In contrast, another Darden brand, Olive Garden, has experienced mixed results. While it has surpassed industry traffic by 60 bps, it has fallen behind in sales comparisons by 70 bps.
This suggests that Olive Garden's lower pricing strategy, approximately 1% compared to an industry average check growth of 3% as reported by Blackbox, is not entirely compensated for by increased customer traffic.
The analyst from BofA Securities believes that Olive Garden's marketing strategy, which emphasizes the brand's significant everyday value, is competitively positioned against rivals promoting similar price points. This marketing approach is expected to support an expansion in the traffic gap and contribute to improvements in the top-line performance.
Darden Restaurants, the parent company of both LongHorn Steakhouse and Olive Garden, is anticipated to benefit from these strategies. The firm's confidence in the company's direction and the performance of its brands is reflected in the raised price target, suggesting a positive outlook for Darden's financial growth.
In other recent news, Darden Restaurants reported fourth-quarter earnings per share of $2.65, surpassing expectations and primarily due to lower food and labor costs. However, the company's revenue did not meet analyst estimates for the third consecutive quarter, with a noticeable slide in same-restaurant sales (SRS) of 1.5%. Stifel, while maintaining a Buy rating, reduced Darden's price target to $180 from the previous $190.
Darden's SRS and customer traffic have been performing better than the broader industry, yet Stifel cautioned about the potential end to Olive Garden's traffic outperformance in the first quarter of fiscal year 2025.
Meanwhile, Citi, UBS, and Deutsche Bank (ETR:DBKGn) adjusted their price targets and maintained Buy ratings on Darden shares, citing the company's strong market share strategy and the company's ability to meet financial goals amidst industry challenges.
In recent developments, Darden Restaurants reported a 6.8% increase in total sales to $3 billion and steady earnings per share at $2.62. The company also plans to open 45 to 50 new restaurants in fiscal 2025, with capital expenditures estimated between $250 million and $300 million. These developments followed Darden's earnings report and led to a flurry of analyst activity.
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