Darden Restaurants (DRI) Estimates Cut at RBC Capital

RBC Capital analyst David Palmer lowered estimates on Darden Restaurants (NYSE: DRI) while reiterating a Sector Perform rating price target of $55.

Ahead of F4Q results, the firm is lowering F4Q EPS estimate from $0.96 to $0.94 and FY15 EPS estimate from $2.78 to $2.77. The firm's F4Q EPS estimate assumes same store sales growth of -2%, -4%, and 0% at Olive Garden, Red Lobster, and LongHorn versus a prior view of -1.5%, -3.5% and 0% respectively.

Palmer notes that upon the completion of the sale of Red Lobster, nearly 60% of Darden's revenues will come from Olive Garden. Given their forecast for another quarter of underperformance they are not yet convinced that an Olive Garden turn is on the horizon.

The analyst believes the 4.5% dividend yield has been a key reason the stock's downside has been limited in recent weeks. "However, another year of low to mid-single digit negative SSS growth might call into question the dividend's sustainability absent more dramatic CAPEX reductions (including further reductions in unit expansion of growth concepts and reimaging) or additional leverage," he said.

All in all, the firm sees only modest upside for the stock and expects the recovery to be a multi-year project.

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 $49.59 yesterday.

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