BofA: Darden Restaurants Margin Concerns Were 'Overstated'

Darden Restaurants, Inc. DRI’s fourth-quarter earnings demonstrated that Bank of America Merrill Lynch's margin concerns had “likely been overstated,” prompting the firm to upgrade the stock.

The Analyst

BofA's Gregory Francfort upgraded Darden Restaurants from Underperform to Neutral and raised the price target from $88 to $108.

The Thesis

Francfort’s previous thesis was based on the belief that margin concerns were not fully represented in Wall Street’s estimates for fiscal 2019, he said in the Friday upgrade note. Darden did trim its long-term annual expansion target, affirming this view. (See Francfort's track record here.) 

That said, Q4 earnings revealed that top-line performance and benign near-term commodities should offset labor pressure on margins, the analyst said. 

Same-store sales projections also seem conservative to Francfort, given a “modestly improving consumer spending backdrop.”

The analyst continues to see limited upside to margin guidance for next year, preventing the stock from receiving a Buy rating.

Price Action

Darden Restaurants shares were up 1.24 percent at the time of publication midday Friday.

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Photo courtesy of Darden Restaurants.