Darden Restaurants Is A Long-Term Winner With Ruth's Acquisition: Analyst

KeyBanc Capital Markets analyst Eric Gonzalez reiterated an Overweight rating on the shares of Darden Restaurants, Inc. DRI, raising the price target to $185 from $170.

The analyst views Darden as a long-term share gainer with credible sales drivers, industry-leading scale, and a diversified portfolio of brands that should enable it to outperform through various cycles. 

Gonzalez remains particularly bullish on the recent acquisition of Ruth's Hospitality Group, Inc, which translates to an equity value of approximately $715 million. The synergy targets (e.g., $20 million run rate by the end of FY25) appear conservative to the analyst.

Related: Darden Closes Ruth's Hospitality Acquisition; RUTH Ceases Trading On Nasdaq

The acquisition is expected to add $0.10- $0.12 to EPS in FY24/ $0.20-$0.25 in FY25 (2-3%), the analyst notes. 

Applying Darden's 3.7% G&A percentage to Ruth's company-owned revenue would yield nearly the entire amount before accounting for supply chain efficiencies.

The analyst notes that Darden will grow the brand and buy in franchised locations to boost earnings over time.

The analyst raised FY23 revenue estimates from $10.489 billion to $10.501 billion. FY24 estimates have been increased from $11.113 billion to $11.126 billion.

Price Action: DRI shares are trading lower by 0.3% to $67.14 on the last check Thursday.