Barclays Maintains an 'Overweight' on Darden Restaurants (DRI); Olive Garden Refinements Not 'Radical' & Importantly, Turn Not Assumed in 2H EPS

Barclays maintains an 'Overweight' on Darden Restaurants (NYSE: DRI) price target of $50.00.

Barclays analyst says, "Darden finds itself in unchartered waters, having to defend its core Olive Garden (OG) brand in the face of comp deceleration, the driver of two consecutive quarterly pre-announcements. We are not surprised by the stock's underperformance, with such expected no matter how management chose to outline the OG brand issues...investors would be: 1) skeptical of a minimizing of brand concerns; or 2) fearful of need for 'radical' change. We believe Darden effectively addressed OG's issues, detailing a short- and long-term strategy to re-emphasize the barbell menu strategy to recoup lost value traffic while retaining the high end user, ultimately protecting the brand's long-term margin and returns. And more importantly for near-term stock price performance, the implied re-acceleration in 2HF12 EPS growth (~15%) guidance does not assume a return to positive OG comps, but rather a significant benefit from lower food costs and further cost saving initiatives, both benefits most peers don't enjoy. On valuation, DRI is trading at ~11.5x forward versus the 6-15x 3-year range and 12x average." (F12 Outlook: EPS growth guidance is 4-7% (we're at 3%))

For an analyst ratings summary and ratings history on Darden Restaurants click here. For more ratings news on Darden Restaurants click here.

Shares of Darden Restaurants closed at $43.68 yesterday.

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