Darden Can Carry Momentum Into 2019
Reduction in menu items and other productivity initiatives are making a difference at concepts beyond Olive Garden.
The key takeaway from
We're seeing more competitors taking pages out of Darden's playbook--including menu rationalization and strategies to increase frequency like Buy One Take One and Pasta Passes at Olive Garden--which still forms the basis for our no-moat rating. Still, we believe Darden can carry its momentum into 2019, especially if tax reform and Cheddar's synergies free up capital to accelerate guest experience efforts. As such, management's modest upward revision to fiscal 2018 guidance--legacy brand comps of 2%, 40 new restaurant openings (implying 3% organic unit growth), total sales growth of 13%, and EPS of $4.45-$4.53--strikes us as feasible goals. We plan to raise our $86 fair value by a few dollars based on a more optimistic near-term outlook and still view Darden as an attractive capital allocation story (high-single-digit dividend per share growth and target of $100 million-$200 million in annual share repurchases). However, we see shares as appropriately valued at current levels.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.