Darden Restaurants Analyst Downgrades Olive Garden Owner On Softening Trends

Restaurant operator Darden Restaurants, Inc. DRI continues to benefit from "significant" economies of scale and buying power, but a projection of softer customer traffic, weaker comps and cost pressures has led Argus to drop its bullish stance. 

The Darden Restaurants Analyst

John Staszak downgraded Darden Restaurants stock rating from Buy to Hold with no price target.

The Darden Restaurants Thesis

Darden reported a 5-cent EPS beat in its fiscal second quarter at $1.12, while revenue growth of 4.2% to $2.06 billion matched estimates, Staszak said in a Friday downgrade note. (See his track record here.)

Yet blended same-store sales across all brands slowed from 2.9% last year to 2%, although this did mark the 21st consecutive quarter of positive growth, the analyst said. 

While there is reason to be concerned with softer customer traffic, a return to a bullish rating is possible if trends improve more than expected, he said.

A bullish stance would also be justified if the company's cost pressures moderate, Staszak said. 

In addition, Darden will likely face higher labor and health care-related costs for the full fiscal year 2020, the analyst said. 

Argus is reducing its 2020 EPS estimate from $6.50 to $6.40 and moving the 2021 estimate lower from $7.30 to $7.10 per share. 

Darden remains among the best-managed casual dining companies, Staszak said.

Over the long-term, a combination of share buybacks, unit expansion and other factors will yield EPS growth, the analyst said. 

Darden Restaurants Price Action

The stock was trading down 0.49% at $108.35 at the time of publication. 

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