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Vivek Kumar
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American multi-brand restaurant operator, Darden’s price target was raised to $112 from $71 with ‘Equal-weight’ stock rating, according to Morgan Stanley equity analyst John Glass, who also upgraded their EPS estimates to $4.68/$6.35 for the next two fiscal years.

On Thursday, Darden Restaurants reported total sales of $1.53 billion, a decrease of 28.4% driven by negative blended same-restaurant sales of 29.0% and partially offset by the addition of 14 net new restaurants. Reported diluted net earnings per share from continuing operations of $0.28 as compared to last year’s reported diluted net earnings per share of $1.38.

Darden reported adjusted diluted net earnings per share from continuing operations of $0.56, after excluding $0.28 related to corporate restructuring costs, as compared to reported diluted net earnings per share of $1.38.

The Company forecasts fiscal 2021 total sales of approximately 82% of prior year and EBITDA of $200 to $215 million.

“Best in class casual dining operator with a strong brand portfolio. As the largest CDR operator, DRI has substantial scale advantages in shared services which can be levered in a post-COVID environment by improving margins and gaining market share. Lead brand Olive Garden (50% of sales) garners top consumer scores, and its comp sales have historically outpaced the industry,” Morgan Stanley’s John Glass added.

“Acquisition of Cheddar’s has been more challenging than initially expected, though still provides longer-term growth potential. Industry uncertainty and relatively fairly valued shares, in our view, drive our EW rating weighed against DRI’s strong sales track record and operational leadership.”

At the time of writing, Darden stock traded 0.18% lower at $97.13 on Friday; however, the stock is down 10% so far this year.

Several other equity analysts have also updated their stock outlook. UBS raised their target price to $109 from $100; Wells Fargo upped their target price to $104 from $91; BofA Global Research upgraded their stock price forecast to $115 from $100; Truist Securities raised price target to $128 from $100; Stephens upped target price to $115 from $98; Guggenheim upgraded their stock price forecast to $133 from $119 and JP Morgan raised their target price to $105 from $82.

Twenty-four analysts forecast the average price in 12 months at $102.74 with a high forecast of $128.00 and a low forecast of $75.00. The average price target represents a 6.44% increase from the last price of $96.52. From those 24 equity analysts, 15 rated ‘Buy’, nine rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“In the last fiscal year pre-COVID, EBITDA margins were 14%. If/when sales recover to 100% of pre-COVID levels, there is theoretically another 100-150 bp of margin opportunity, subject to reinvestment needs and competitive intensity at that time,” Morgan Stanley’s Adam Jonas said.

“For now, we are comfortable underwriting the 15.5% by FY22, leading us to raise FY21/22 EPS estimates as described below, and raising our price target to $112, based on our CY22 estimate of $6.60 in EPS (or $1.4B EBITDA), and restoring the multiple to pre-COVID averages given this increased visibility. Our bull case factors in the case where EBITDA margins could reach 17%.”

Upside risks: 1) Company is able to significantly gain share. 2) OG/LH comps benefit from higher off-premise sales vs pre-COVID. 3) Margins expand above expected without compromising investments, highlighted by Morgan Stanley.

Downside risks: 1) Regional lockdowns and new virus outbreaks keep consumers from visiting dining rooms (by choice or mandate). 2) Off-premise margins deteriorate. 3) Cheddar’s integration remains challenged in a tough macro backdrop.

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