What happened
Shares of Darden Restaurants (DRI 0.65%) were gaining today after the Olive Garden parent got a bullish note from an analyst and caught a tailwind, along with the rest of the restaurant industry, from a strong earnings report from Chipotle.
As a result, the stock was up 8.4% as of 2:45 p.m. EDT.
Image source: Darden Restaurants.
So what
SunTrust analyst Jake Bartlett raised his price target on the casual-dining chain from $70 to $85, implying about a 23% upside, and he maintained his buy rating on the stock. Bartlett noted recovering comparable sales at Olive Garden and LongHorn Steakhouse, the company's two biggest chains, and said its balance sheet was solid after the company announced a secondary offering of close to 8 million shares at $58.50, which will dilute current shareholders by about 7%.
Bartlett also cautioned that his price target was significantly below his pre-crisis level of $139, indicating he still sees significant headwinds ahead for the company.
Indeed, Darden has seen comps improve as more customers have ordered takeout and delivery. At Olive Garden, comparable sales hit a bottom at a 71.1% decline on the week ended March 22 and improved to a 44.8% decline in the week ended April 19, while LongHorn Steakhouse has seen a similar, but more modest, recovery, climbing to negative 59.2% comparable sales last week. Off-premise sales at Olive Garden are up about three times from before the outbreak, while LongHorn Steakhouse's to-go orders have increased by about four times.
Now what
Despite those positive trends, there's no question that Darden still has a long road ahead of it as the company has been forced to raise both debt and equity to manage through a challenging period, and dining rooms are unlikely to be full even after stay-at-home orders are lifted due to fears about the virus and the impact of a recession on consumer spending. Still, the company is managing effectively through the crisis and should return to full health over the long term, though that may not be until years from now.
