Olive Garden’s Parent Co. is Eyeing a Yuge Post-Pandy Bounceback

The Darden family of restaurants features some of the most recognizable and successful brands in full-service dining: Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s.

Darden Restaurants inched higher on Tuesday following an upgrade from Morgan Stanley, which dubbed the stock its ideal way to play a boost in bottled-up demand later this year.

Analyst John Glass upped his rating on Darden [$DRI] to Overweight from Equal Weight, and tacked on $20 to his price target, to $42. He adds that as “the leading casual diner is well positioned for the post-Covid environment.”

Glass is predicting a “strong sales recovery,” when the virus begins to evaporate as a threat with widespread vaccination in 2021, and Darden will be crushing comparisons, given the steep decline in 2020 dining. His research illustrates the potentially higher-than-expected demand lasting through 2022 for the Olive Garden parent.

Back in June, Darden CEO Gene Lee said that the company had not seen consumer behavior change as Covid-19 cases started to spike in the U.S.

He mentioned that the company has laid out specific post-pandy margin targets, which could translate into EBITDA margins at least 150 basis points higher than they were before the crisis, and 300 basis points higher when sales recover to pre-pandy levels.

Glass also flaunted Darden’s strong balance sheet, which leaves it “in a better position to invest and return capital to shareholders.” He notes that the company’s scale and track record makes him optimistic in its ability to benefit from a post-Covid world, when shares could be worth as much as $188. 

Darden is up 2.8% to $124.40 in recent trading. The shares are up 9.5% in the past year, but have gained 4.4% year to date. A revival in virus cases led the company to constrain its outlook in late 2020, as some areas restored indoor dining restrictions and harsher restrictions cut demand for outdoor seating.

Despite that, analysts see better days ahead. The pandy put many smaller and independent operators out of business, meaning that big chains, like Darden, look well positioned to gain market share.


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