Darden restaurants downgraded due to possible recession
2022.11.29 11:44
Darden restaurants downgraded due to possible recession
Budrigannews.com – Darden Dining (NYSE:)was downgraded from Outperform to Neutral, and Baird’s price target was raised to $150 from $134 in a note on Tuesday.
Investors were told by analysts that the company still has a very positive outlook on its internal operating fundamentals and is on track to deliver positive results in the second and third quarters.
However, they added that they believe the risk/reward ratio has become more balanced at the current valuation metric when they take into account the shares’ year-to-date outperformance and the lingering risks associated with the macro outlook.
“Including dividends, DRI shares have returned +1% to date in 2022, compared to -16% for the,” according toThe current premium to the S&P 500 of 6% is also close to historical levels, and the NTM P/E of 18.4X is roughly in line with the average for the years prior to the pandemic.”
We simply think the multiples being applied to the shares more fairly balance the key positives of the DRI story (e.g., well-positioned brands, scale advantages, appealing growth profile) with the near-term risks related to the casual dining industry backdrop,” the analysts wrote. “We remain constructive on the longer-term fundamental outlook for the company.”
“The key variables that have historically correlated well to casual dining industry traffic (e.g., consumer confidence, housing market conditions) have turned unfavorable and are signaling an industry slowdown in calendar 2023, and we fear the outlook could worsen if tighter monetary policy ultimately leads to weaker employment conditions,” they added. “
Although casual dining industry sales have held up reasonably well in recent months and are likely to remain positive in DRI’s FQ3 (lapping year-ago omicron disruptions) Although Darden is in a relatively good position to navigate a slower economy, we highlight the risk that tougher macro conditions could cause revenue trends for FQ4/F2024 to lag current model assumptions, posing a risk to earnings estimates (though possibly offset by lower input cost inflation).
