Darden Restaurants shares slumped nearly 4% in pre-market trading on Friday after the multi-brand restaurant operator disappointed investors with a weak fiscal 2022 profit outlook despite beating earnings and revenue estimates for the second quarter.
The Orlando-based restaurant operator reported quarterly adjusted earnings of $1.48 per share for the quarter ended in November, beating the Wall Street consensus estimates of $1.43 per share. Moreover, the company’s revenue also jumped over 37% to $2.27 billion from a year earlier. That too was higher than the market expectations of $2.23 billion.
The Olive garden parent updated its financial outlook for fiscal 2022 based on year-to-date results and its expected performance for the remainder of the year, assuming no significant business interruptions related to COVID-19.
They forecast total sales of nearly $9.55 to $9.70 billion, slightly better compared to analysts forecast of $9.54 billion. The company said its total sales growth compared to the pre-COVID19 level will grow in the range of 9% to 11%, same-restaurant sales will grow compared to fiscal 2021 by 29% to 31%.
The company, which owns and operates 1,800 full-service casual and fine dining restaurants under eight brands, forecasts its diluted net earnings per share from continuing operations of $7.35 to $7.60, which was lower than the market consensus estimates of $7.61 per share.
Following this, Darden Restaurants stock declined nearly 4.0% lower at $141.40 in pre-market trading on Friday. However, it soared over 23% so far this year.
“Darden Restaurants (DRI) reported solid 2Q EPS, with a modest beat on G&A. 2022 EPS was tweaked to $7.35-$7.60 from $7.25-$7.60, vs $7.60 consensus, for a management team that typically guides conservatively. Following 2Q’s $0.05 EPS beat vs consensus, guidance implies a $0.05+ EPS headwind vs consensus in 2H22, due to 5.5% inflation (from 4%). We view the CEO transition from Gene Lee to Rick Cardenas as orderly & deserved,” noted Andrew M. Charles, equity analyst at Cowen.
Darden Restaurants Stock Price Forecast
Nineteen analysts who offered stock ratings for Darden Restaurants in the last three months forecast the average price in 12 months of $171.50 with a high forecast of $185.00 and a low forecast of $155.00.
The average price target represents a 16.56% change from the last price of $147.13. Of those 19 analysts, 13 rated “Buy”, six rated “Hold” while none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $171 with a high of $210 under a bull scenario and $110 under the worst-case scenario. The firm gave an “Overweight” rating on the multi-brand restaurant operator’s stock.
“Best in class casual dining operator with strong brand portfolio. As the largest CDR operator, DRI has substantial scale advantages in shared services which can be levered in a post-Covid environment by improving margins and gaining market share. Lead brand Olive Garden (~50% of sales) garners top consumer scores, its comp sales have historically outpaced the industry and recent cost savings have improved unit economics,” noted John Glass, equity analyst at Morgan Stanley.
“Acquisition of Cheddar’s has been more challenging than initially expected, though still provides longer-term growth potential. Strong position relative to peers, scale, operational leadership, unit growth and structurally higher margins drives our OW rating.”
Several other analysts have also updated their stock outlook. Barclays raised the target price to $179 from $175. Evercore ISI lifted the target price to $165 from $155. Keybanc slashed the target price to $172 from $180. Stephens upped the target price to $180 from $170.
Technical analysis suggests it is good to buy as 150-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.
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This article was originally posted on FX Empire