Darden Restaurants Stock At A Tasty Valuation, Baird Upgrades

Analysts at Baird Equity Research turned bullish on Darden Restaurants, Inc. DRI as the stock's recent pullback has created a "compelling entry point." The firm's David Tarantino upgrades Darden's stock rating from Neutral to Outperform with an unchanged $94 price target.

Darden's stock has lost more than 15 percent over the past three months, which makes its current valuation more attractive, Tarantino explained in his upgrade note. Specifically, the stock's current next-twelve-months (NTM) EV/EBITDA and P/E multiples are sitting 4–9 percent below their respective one year averages.

While many investors are likely concerned with Darden's same-store sales outlook in the struggling casual dining industry, the company is well positioned to deliver above-average performance, the analyst noted. In fact, Darden can perform well in the restaurant sector even if overall industry trends don't improve — although it would likely imply upside to estimates.

Meanwhile, management remains focused on simplifying its operations, which lead to a better service and execution and also improve the value proposition of its brands through scale advantages and quality upgrades.

"We believe further evidence of solid top- and bottom-line fundamentals in upcoming periods can lead to improved investor sentiment and support a return to higher valuation metrics on the shares following the recent pullback," the analyst emphasized.

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