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Why Darden Is Gold Standard for Casual Dining Chains

There's more to Darden's outperformance than favorable industry trends.

Securities In This Article
Darden Restaurants Inc
(DRI)

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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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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