On Friday, UBS reaffirmed its Buy rating on Darden Restaurants (NYSE:DRI), maintaining a price target of $188.00 for the shares. The firm's outlook remained positive despite acknowledging mixed same-store sales (sss) across the company's brands and concerns over shrinking traffic at Olive Garden, Darden's flagship chain.
The firm noted the fourth quarter earnings commentary, which revealed margin improvements due to solid cost management and provided support for a better-than-anticipated fiscal year 2025 guidance. Although macroeconomic pressures persist, UBS anticipates an improvement in trends through FY25.
The focus for Darden is on strengthening Olive Garden's sales trajectory and achieving the FY25 guidance. This includes a blended sss growth of 1.0-2.0% and an adjusted earnings per share (EPS) of $9.40-9.60.
UBS expressed confidence in Darden's history of meeting earnings guidance and expects continued effective margin management. Additionally, the firm believes Olive Garden has mechanisms to boost sales and achieve at least the lower end of the FY25 targets.
UBS further commented on Darden's market position, suggesting that the restaurant group is poised for further market share gains and margin expansion over time. With the shares trading at approximately 16 times the consensus FY25 EPS, UBS finds the valuation attractive for what it considers a quality company likely to deliver a long-term total shareholder return of 10-15%, noting Darden's historical resilience in challenging economic conditions.
In other recent news, Darden Restaurants reported a 6.8% increase in total sales to $3 billion and steady earnings per share at $2.62. Citi raised its price target on Darden shares, maintaining a Buy rating, citing the company's successful strategy of focusing on everyday value and high service levels. Meanwhile, Evercore ISI kept its price target at $165, highlighting the company's commitment to profitable sales growth despite a 3.3% traffic decline at Olive Garden.
In contrast, Deutsche Bank (ETR:DBKGn) reduced its price target from $183 to $180, citing industry challenges and potential increased marketing expenses. BTIG confirmed its Buy rating with a $175 price target, expressing confidence in Darden's ability to meet its financial goals amid industry challenges.
Truist Securities maintained a Buy rating with a steady price target of $185, viewing the FY25 guidance as robust given the current economic uncertainties. Morgan Stanley (NYSE:MS) kept its Overweight rating with a steady price target of $175, aligning with the upper range of the company's fiscal year 2025 earnings guidance. These are recent developments following Darden's earnings report.
InvestingPro Insights
With Darden Restaurants (NYSE:DRI) on UBS's radar, a closer look through the lens of InvestingPro data and tips reveals additional facets of the company's financial health and market performance. The company boasts a market capitalization of $18.42 billion, highlighting its significant presence in the industry. Furthermore, Darden's commitment to shareholder returns is evident with a 3.4% dividend yield and a noteworthy history of maintaining dividend payments for 30 consecutive years, a testament to its financial stability and management's confidence in sustained profitability. This is further supported by the recent dividend growth of 8.26%.
Despite concerns over near-term earnings, reflected in the P/E ratio of 17.81, Darden's stock trades with low price volatility, indicating a level of market steadiness that investors may find reassuring. Moreover, the company has demonstrated revenue growth of 8.53% over the last twelve months as of Q3 2024, which aligns with UBS's positive outlook and confidence in Darden's ability to achieve its FY25 guidance. For investors seeking a deeper dive into Darden's potential, InvestingPro offers additional insights and tips, including the fact that Darden has raised its dividend for three consecutive years, showcasing a commitment to returning value to shareholders.
Investors interested in a more comprehensive analysis can explore further InvestingPro Tips for Darden Restaurants at https://www.investing.com/pro/DRI. There are currently 9 additional tips available, which can be accessed with an exclusive 10% discount on a yearly or biyearly Pro and Pro+ subscription using the coupon code PRONEWS24.
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