Morningstar

Darden Can Carry Momentum Into 2019

Reduction in menu items and other productivity initiatives are making a difference at concepts beyond Olive Garden.

Securities In This Article
Darden Restaurants Inc
(DRI)

The key takeaway from

We're seeing more competitors taking pages out of Darden's playbook--including menu rationalization and strategies to increase frequency like Buy One Take One and Pasta Passes at Olive Garden--which still forms the basis for our no-moat rating. Still, we believe Darden can carry its momentum into 2019, especially if tax reform and Cheddar's synergies free up capital to accelerate guest experience efforts. As such, management's modest upward revision to fiscal 2018 guidance--legacy brand comps of 2%, 40 new restaurant openings (implying 3% organic unit growth), total sales growth of 13%, and EPS of $4.45-$4.53--strikes us as feasible goals. We plan to raise our $86 fair value by a few dollars based on a more optimistic near-term outlook and still view Darden as an attractive capital allocation story (high-single-digit dividend per share growth and target of $100 million-$200 million in annual share repurchases). However, we see shares as appropriately valued at current levels.

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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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