Darden Restaurants Inc DRI

Darden: We're Fine With Chuy's Acquisition, Which Looks Value-Neutral; Shares Fairly Priced

Narrow-moat Darden Restaurants announced its planned acquisition of Chuy's Holdings on July 17 after markets closed. We think the move aligns strategically with Darden's long-term growth roadmap and appears to be fairly priced, with a $605 million enterprise value representing 10.3 times adjusted EBITDA based on the press release, a bit cheaper than the 10.7 times median figure we calculate for publicly traded full-service competitors. Consequently, we don't expect to alter our $143 per share intrinsic valuation for Darden, leaving shares fairly valued after a 1%-2% decline in aftermarket trading. Chuy's shares rallied 47% on the announcement to $37.30 at the time of publication, near the $37.50 per share acquisition price, suggesting that the market anticipates no impediments to deal closure during Darden's fiscal second quarter.