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Evercore ISI confident Darden Restaurants will deliver 7% profit growth in FY25

EditorRachael Rajan
Published 21/06/2024, 09:04 pm
DRI
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On Friday, Evercore ISI maintained its In Line rating on Darden Restaurants (NYSE:DRI) with a price target of $165.00.

The firm's focus highlighted the company's commitment to profitable sales growth despite negative traffic trends at Olive Garden, which accounts for 45% of Darden's sales. Olive Garden experienced a 3.3% traffic decline in the second half of fiscal year 2024 but continues to report strong customer satisfaction scores.

The analysis indicated a need for Olive Garden to boost consumer awareness of its value as households with incomes below $75,000 increasingly opt for home cooking in response to a promotional market. Despite these challenges, Evercore ISI expressed confidence in Darden's ability to manage its profit and loss statement to achieve a 7% profit growth in fiscal year 2025, bolstered by positive sales trends at LongHorn Steakhouse, where traffic rose by 0.8% in the fourth quarter.

Darden Restaurants' stock is currently trading at the lower end of its five-year forward price-to-earnings (P/E) range of 15-21 times. The $165 price target is based on approximately 18 times Evercore ISI's projected earnings per share of $9.54 for fiscal year 2025. The firm anticipates that improving sales and easing year-over-year comparisons in the second half of fiscal year 2025 could serve as a potential catalyst for the stock.

In other recent news, Darden Restaurants has been navigating industry challenges with strategic pricing and effective marketing efforts. Its recent earnings report showed a 6.8% increase in total sales to $3 billion and steady earnings per share (EPS) at $2.62.

The company plans to open 45 to 50 new restaurants in fiscal 2025, with capital expenditures estimated between $250 million and $300 million.

Despite the challenging dining environment, BTIG maintains a positive stance on Darden, citing several factors that could support the company's financial goals. Truist Securities also maintained a Buy rating on Darden, viewing the FY25 guidance as robust given the current economic uncertainties. However, Deutsche Bank (ETR:DBKGn) reduced its price target from $183 to $180, citing industry challenges and potential increased marketing expenses.

InvestingPro Insights

As Evercore ISI maintains its In Line rating on Darden Restaurants (NYSE:DRI), it's worth noting that the company has been demonstrating a commitment to shareholder returns, having raised its dividend for the last three consecutive years. This is complemented by a current dividend yield of 3.4%, which is an attractive feature for income-focused investors. Additionally, Darden's stock has rewarded investors with a high return over the last decade, suggesting a history of long-term value creation.

On the financial metrics front, Darden's market capitalization stands at a robust $18.42 billion, and the company is trading at a P/E ratio of 17.81, which reflects investor confidence in its earnings potential. However, it's trading at a high Price / Book multiple of 8.44, indicating that the stock may be priced at a premium compared to its book value. With a solid revenue growth of 8.53% over the last twelve months as of Q3 2024, Darden appears to be maintaining a healthy top-line expansion.

Investors looking to delve deeper into Darden Restaurants' financial health and future prospects can find additional InvestingPro Tips on: https://www.investing.com/pro/DRI. There are 5 more tips available, which could provide further insights into the company's performance and valuation. For those interested in an in-depth analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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