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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.

Securities In This Article
Darden Restaurants Inc
(DRI)

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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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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