Darden Restaurants: Bernstein sees limited upside, Evercore ISI bullish

Darden Restaurants (NYSE:DRI ) has drawn mixed views from analysts on Friday, with Evercore ISI upgrading the stock while Bernstein takes a more cautious stance.

Evercore ISI upgraded Darden to Outperform from In Line, raising the price target from $165 to $205, citing increased confidence in sales growth, particularly at Olive Garden, which makes up 45% of the company's sales.

Evercore ISI highlighted new initiatives such as more price-point advertising, limited-time offers (LTOs), and the integration of Uber Eats as key drivers.

"We believe the company will continue to focus on profitable sales growth allowing EBITDA margin to improve over the next 12 months," Evercore ISI said, also raising its fiscal year 2026 same-store sales (SSS) growth estimate to 3% from 1.5%.

"We also remain confident on Long Horn (25% of sales) as it continues to gain share," added the firm.

In contrast, Bernstein downgraded Darden to Market-Perform from Outperform, citing limited upside and continued macroeconomic pressures affecting consumer spending.

The firm noted that Olive Garden's same-store sales declined by 2.9% in the first quarter of fiscal year 2025, marking the chain's largest setback in over a decade, excluding pandemic disruptions.

Bernstein noted that while management has shifted to a more aggressive strategy, including LTOs and price-point advertising, they see potential long-term challenges: "We note that these attempts may be masking more enduring pressures than we had anticipated."

"With the low frequency in the categories in which Darden operates, we expect it will take some time for consumers to notice the changes," they added.

Bernstein remains concerned about labor inflation risks and the potential impact of tighter immigration controls, which could shrink the labor pool.

Despite these concerns, they expect Darden to meet its fiscal year 2025 guidance of 6-8% EPS growth but revised their price target down to $180 from $190, noting that the recent stock rally has balanced the risk-reward profile.

Source: Investing.com