(DRI) Darden Restaurants Incorporated – Bear of the Day

Although Darden Restaurants, Inc. (DRI) registered improving blended comparable restaurant sales for the last few quarters, recent woes at Olive Garden continue to nag the company. Stiff competition resulting in higher discounting rates and promotional offers, increasing food costs for the upcoming quarter and cautious consumer spending add to the worry.

Moreover, a recent cut in guidance compels us to downgrade the stock from a Neutral to Underperform recommendation. The company now expects earnings per share from continuing operations to grow 4 7% as against the lower end of 12-15% guided earlier.

Our six-month target price of $40.00 equates to about 11.2x our estimate for 2012. The target price implies an expected total negative return of 9.5% over that period. We recommend an Underperform rating on the shares.

DARDEN RESTRNT (DRI): Free Stock Analysis Report

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