Darden Earnings: Persistent Industry Outperformance Encouraging, but Valuation Looks Inflated

Narrow-moat Darden Restaurants continues to fire on all cylinders, with its portfolio of full-service restaurants outperforming full-service industry same-store sales benchmarks by 610 basis points during its fiscal fourth quarter. Sales of $2.8 billion and diluted EPS of $2.58 were in line with our forecasts for $2.8 billion and $2.50, respectively. We expect to increase our $143 fair value estimate by a low-single-digit percentage, consistent with time value. We also plan to adjust our Uncertainty Rating to Medium from High, consistent with our quantitative methodology. However, Darden's valuation continues to look stretched to us, with the shares trading at a 12%-13% premium to our revised fair value estimate.