On Friday, UBS maintained a Buy rating on Darden Restaurants (NYSE:DRI) stock and raised the price target to $195 from $188. The firm highlighted positive developments within the company despite recent sales pressures at its Olive Garden chain. UBS expressed optimism about Darden's sales momentum since July and its strategic initiatives aimed at increasing customer traffic and sales.
The analyst cited several factors that could contribute to Darden's long-term sales, including the potential from delivery services and consistent performance from its LongHorn Steakhouse brand. The firm also noted Darden's focus on value messaging and other traffic-driving initiatives as supportive of improved sales and earnings momentum.
The valuation of Darden Restaurants at approximately 16.5 times the consensus FY26 EPS was deemed attractive by UBS. The firm anticipates a 10-15% long-term total shareholder return, with a valuation multiple that could approach the higher end of Darden's historical range of 15-20 times earnings.
Despite the potential impact of the upcoming Never Ending Pasta promotion on September 25, UBS believes that the new partnership with Uber (NYSE:UBER) for delivery services could serve as a positive catalyst for the company. This partnership is expected to support further upside following the gains observed today.
In other recent news, Darden Restaurants Inc (NYSE:DRI)., the parent company of Olive Garden and LongHorn Steakhouse, reported mixed results for the fiscal year 2025 first quarter.
Despite a decrease in same-restaurant sales and guest counts, Darden's sales saw a 1% increase year-over-year, totaling $2.8 billion. Adjusted diluted net earnings per share were reported at $1.75, slightly below the previous year.
Darden's CEO, Rick Cardenas, remains confident in the company's long-term strategy, noting key innovations and a new delivery partnership with Uber. The company has also announced the pending acquisition of Chuy's, expected to be neutral to earnings per share for the fiscal year.
Despite challenges such as a dip in fine dining performance and unexpected sales drop in July, Darden continues to focus on value-driven promotions and competitive pricing. The company also highlighted strong performance trends in August and September, and reaffirmed its guidance for the fiscal year.
Notably, LongHorn Steakhouse outperformed the industry with a 6.5% increase in sales. These are among the recent developments for Darden Restaurants Inc.
InvestingPro Insights
As UBS maintains a bullish stance on Darden Restaurants (NYSE:DRI), insights from InvestingPro provide additional context to the company's financial health and market performance. With a substantial market capitalization of $20.48 billion, Darden demonstrates significant industry presence. The company's P/E ratio stands at 19.99, indicating a premium valuation relative to near-term earnings growth, which is further evidenced by a high PEG ratio of 2.82 for the last twelve months as of Q4 2024. This suggests that investors are expecting higher future earnings growth compared to the current rate.
Darden has shown a dedication to rewarding shareholders, having raised its dividend for 3 consecutive years and maintaining dividend payments for 30 consecutive years. The company's dividend yield was 3.52% as of the last data point, with a notable dividend growth of 15.7% over the last twelve months as of Q4 2024. This commitment to returning value to shareholders aligns with UBS's anticipation of a strong total shareholder return.
InvestingPro Tips highlight that Darden is trading near its 52-week high, with the price at 97.42% of this peak. Despite some analysts revising their earnings downwards for the upcoming period, the company has been profitable over the last twelve months and is predicted to remain profitable this year. For investors seeking additional insights, there are numerous other InvestingPro Tips available at https://www.investing.com/pro/DRI, which can provide further guidance on Darden's stock performance and investment potential.
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