Although
Darden Restaurants, Inc.
(
DRI
) registered improving blended comparable restaurant sales for the
last few quarters, recent woes at Olive Garden continue to nag the
company. Stiff competition resulting in higher discounting rates
and promotional offers, increasing food costs for the upcoming
quarter and cautious consumer spending add to the worry.
Moreover, a recent cut in guidance compels us to downgrade the
stock from a Neutral to Underperform recommendation. The company
now expects earnings per share from continuing operations to grow
4-7% as against the lower end of 12-15% guided earlier.
Our six-month target price of $40.00 equates to about 11.2x our
estimate for 2012. The target price implies an expected total
negative return of 9.5% over that period. We recommend an
Underperform rating on the shares.
DARDEN RESTRNT (
DRI
): Free Stock Analysis Report
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