RBC Capital Raises Price Target on Darden Restaurants (DRI) Based on Fundamentals and Likely Value From REIT
RBC Capital reiterates a Sector Perform rating on Darden Restaurants (NYSE: DRI), and raised the price target to $74.00 (from $70.00), to reflect improved fundamentals and likely value from the separation of the company's real estate portfolio into a REIT. Analyst David Palmer believes that McDonald’s and Restaurant Brands International clearly have the scale to create a REIT.
Palmer commented, "We are raising our price target from $70 to $74 and our FY16 EPS estimate from $2.90 to $3.16 (+19% YOY). Our new price target reflects both our higher EPS estimates and the value likely to be created from the separation of the company’s real estate portfolio into a REIT. While our earnings model does not account for the financial impact from the REIT transaction on the new Darden (likely to be ~$50M annual hit to pre-tax profit), our FY16 EPS estimate implies slightly higher sales growth estimates and margin expansion from easing food costs."
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Shares of Darden Restaurants closed at $69.39 yesterday.