Wells Fargo Comments on Darden's (DRI) Sale of Red Lobster
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27 Buy, 16 Hold, 1 Sell
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Wells Fargo maintained an Outperform rating on Darden Restaurants (NYSE: DRI). Comments follow an announcement it plans to sell Red Lobster to Golden Gate Capital for $2.1 billion. Overall, Analyst Jeff Farmer likes the decision to sell Red Lobster.
"Darden announced the sale of Red Lobster to Golden Gated Capital for $2.1B – or 9x TTM EBITDA - roughly in line with the current valuation for the entire DRI entire business. We believe had this deal been done at 8X or below, it would have been much harder for investors to swallow," said Farmer.
"In the short term we believe the shares are reflecting disappointment from the event-driven shareholder base – or those holding out hope that activist investor Starboard could get a REIT transaction executed for Darden's real estate assets. Growing skepticism from the market following a month of back and forth presentations between DRI and Starboard with Darden presenting third-party analysis that the REIT would not be value-creative and Starboard presenting its own third-party analysis indicating that it would," he continued.
"The valuation work on the new Darden business is where the market is still trying to digest this transaction specifically the EBITDA growth run rate moving forward and a clear picture of what the new balance sheet would look like following potential debt reduction: Bottom line for us – we conservatively estimate that “newDRI” trades 10x TTM EBITDA and 9x NTM EBITDA (post $60M cost controls)," added the analyst.
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 $50.69 yesterday.
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