Darden Is More Than a One-Brand Story
Best practices from Olive Garden are gaining traction across the system, suggesting that momentum will continue into fiscal 2019 and beyond.
We believe investors should walk away from no-moat
With the strong finish to the year, we find Darden's full 2019 outlook reasonable, including 4%-5% total revenue growth--1%-2% comps (which includes negative comps at Cheddar's as the integration process continues) and 45-50 new restaurant openings (3% unit growth)--and diluted EPS of $5.40-$5.56. The company also tweaked the algorithm for its 10%-15% annual shareholder return target (7%-10% earnings growth plus 3%-5% growth in cash returned to shareholders). The target remains the same, but now calls for 10-30 basis points of annual operating margin expansion (10-40 basis points previously) and $150 million-$250 million in annual share repurchases (up from $100 million-$200 million). These targets are aligned with our outlook over the next three years; as such, we're only planning a modest increase to our $96 fair value estimate to account for the fourth-quarter upside and time value of money. We see shares as fairly valued, but operational momentum and capital returns keep the stock in favor over the foreseeable future.
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