Why Darden Is Gold Standard for Casual Dining Chains
There's more to Darden's outperformance than favorable industry trends.
There wasn't much more that
With the strong start to the year, we find Darden's updated full-year 2019 outlook as realistic if not slightly conservative. This includes new revenue growth targets of 5.0%-5.5%, blended comps of 2.0%-2.5%, 45-50 new restaurant openings (3% unit growth), and diluted EPS of $5.52-$5.65. Although guidance implies decelerating comps as the year progresses and a longer integration process for Cheddar's than some investors had anticipated, we still perceive Darden as one of the most reliable names in casual dining. While we expect rivals to replicate its current strategies--the basis of our no-moat rating--we remain comfortable with our five-year projections, including 6% top-line growth (2%-3% comps, 3%-4% unit growth) and operating margins growing to the low 11s (versus 9.4% in fiscal 2018). We see shares as fairly valued--we're planning a modest increase to our $105 fair value estimate for the first-quarter strength--but see operational momentum and its capital returns keeping the stock in favor over the foreseeable future.
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