Morgan Stanley Raises Darden Restaurants’ Target Price to $144, Says Better Days Right Ahead

Morgan Stanley raised their stock price forecast on Darden Restaurants to $144 from $142, reiterating an “Overweight” rating on the multi-brand restaurant operator and said it has the greatest potential to structurally improve its business post-COVID-19 and benefit from the current environment.

On March 25, the Orlando-based restaurant operator is expected to report its third-quarter earnings of $0.69 per share, which represents a year-over-year decline of over 64% from $1.90 per share seen in the same quarter a year ago.

However, it is worth noting that in the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 260%.

The company, which owns and operates 1,800 full-service casual and fine dining, is expected to see a year-over-year revenue decline of over 30% to around $1.6 billion.

“F3Q contains two of the worst recent months for CDRs (Dec/Feb), but we think Darden Restaurants (DRI) can beat consensus top-line; flow through and current trends as we lap COVID-19 are key data points for the quarter. Raising blended SSS to -27%, EPS unchanged at 75c and ahead of the Street,” noted John Glass, equity analyst at Morgan Stanley.

“Though the stock is still trading at a premium to its 3-year history multiple, so is the case for all casual diners at this point, with Darden Restaurants at one of the lowest premiums to history (together with BLMN). This and other factors reinforce our Overweight view, as we believe Darden Restaurants has the greatest potential to structurally improve its business post-COVID-19 and benefit from the current environment.”

Darden Restaurants’ shares, which rose over 9% in 2020, surged more than 17% so far this year. On Friday, the stock ended nearly flat at $139.79.

Sixteen analysts who offered stock ratings for Darden Restaurants in the last three months forecast the average price in 12 months at $144.57 with a high forecast of $165.00 and a low forecast of $126.00.

The average price target represents a 3.42% increase from the last price of $139.79. Of those 16 equity analysts, 13 rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Other equity analysts also recently updated their stock outlook. Darden Restaurants had its target price hoisted by Barclays from $131 to $145. The firm currently has an overweight rating on the restaurant operator’s stock. KeyCorp lifted their target price from $124 to $130 and gave the company an overweight rating.

Moreover, Credit Suisse Group raised their target price to $136 from $112 and gave the company an outperform rating. At last, Zacks Investment Research raised shares to a strong-buy rating from hold and set a $126 price target.

“Best in class casual dining operator with strong brand portfolio. As the largest CDR operator, DRI has substantial scale advantages in shared services which can be levered in a post-COVID-19 environment by improving margins and gaining market share. Lead brand Olive Garden (50% of sales) garners top consumer scores, its comp sales have historically outpaced the industry and recent cost savings have improved unit economics,” Morgan Stanley’s Glass added.

“Acquisition of Cheddar’s has been more challenging than initially expected, though still provides longer-term growth potential. Strong position relative to peers, scale, operational leadership, unit growth and structurally higher margins drive our OW rating.”

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