Low Valuation Lands Darden Restaurants On Oppenheimer's Top Picks List

Darden Restaurants, Inc. DRI has underperformed its peers significantly this year, but its low valuation has set the table for over 20 percent of upside, according to Oppenheimer.

The Analyst

Oppenheimer analyst Brian Bittner reiterated an Outperform rating and $105 price target on Darden and added the equity to the sell-side firm's top picks list.

The Thesis

Darden shares had fallen 10.7 percent this year prior to Thursday, while its peers have gained an average of 14 percent, Bittner said in a Thursday note. (See the analyst's track record here.)

Much of this decline occurred in the past month — 9 percent since a recent high of $94.44 on April 27 — on investors’ fear of a same-store sales miss for the fourth quarter ending May 27.

Bittner doubts the company will see comps off significantly from consensus estimates, and said any miss will not carry over into future quarters.

The analyst's bullish stance is underpinned by two factors:

A view that comps can accelerate after this quarter's headwinds dissipate.
Analysis suggesting upcoming guidance for fiscal 2019 will easily satisfy consensus estimates.

“[Darden] has a strong track record of smartly managing its bottom-line,” Bittner said in a note. The Olive Garden owner's margins should be helped by management ending its brands’ less profitable promotions, the analyst said.