Last Update 11 Dec 25
Fair value Decreased 0.30%DRI: Future Returns Will Depend On Managing Beef Costs And Menu Pricing
We trim our Darden Restaurants price target slightly to approximately $221 from about $221 and maintain a constructive outlook, as analysts cite modestly lower valuation multiples and near term beef driven margin pressure but continue to highlight resilient same store sales trends, solid execution and supportive long term demand across key banners.
Analyst Commentary
Street research on Darden following its latest results reflects a mixed but generally constructive stance, with most firms trimming price targets while reiterating positive long term views on execution, traffic resilience and brand positioning.
Bullish analysts are largely treating the post earnings pullback as an opportunity, citing healthy same store sales momentum at Olive Garden and LongHorn, disciplined pricing relative to inflation and a track record of operational consistency that supports premium valuation versus peers.
More cautious voices focus on elevated expectations heading into the quarter, rising beef costs and the risk that Q1 represented a near term peak in comps and margins, warranting lower targets and a more measured stance on multiple expansion.
JPMorgan, in particular, characterizes the recent share weakness as misaligned with fundamentals and maintains an Overweight view, underscoring confidence that management remains on plan despite short term volatility.
Bullish Takeaways
- Bullish analysts argue that the share price pullback is disconnected from underlying fundamentals, with execution and same store sales trends viewed as sufficiently strong to support potential upside from current levels.
- Several upward price target revisions and Overweight or Buy ratings highlight confidence in Darden's ability to sustain positive comps, gain market share and leverage its scale advantage across Olive Garden and LongHorn.
- Strategic underpricing of inflation, targeted menu innovation and tests around smaller portions and promotions are seen as tools to protect traffic and value perception while still enabling modest margin expansion over time.
- Improved long term sales outlooks, including higher FY26 same store sales expectations, reinforce the view that Darden can deliver steady growth that some analysts believe justifies a valuation premium to the broader casual dining group.
Bearish Takeaways
- Bearish analysts point to elevated expectations heading into the quarter and a modest same store sales miss as reasons to curb enthusiasm, with some suggesting Q1 may have marked a near term peak in performance.
- Rising beef costs and broader food inflation are pressuring near term margins, raising concerns that incremental pricing and productivity gains may not fully offset cost headwinds in the coming quarters.
- Some research highlights that Darden's shares had previously held up better than the sector, implying less room for multiple expansion and justifying target cuts even if the long term story remains intact.
- Weaker than expected Q1 results relative to heightened Olive Garden expectations have led more cautious analysts to adopt Hold or Neutral stances, emphasizing the risk that future disappointments could further compress the valuation.
What's in the News
- President Trump is expected to sign an order cutting tariffs on key food imports, including beef, which could ease some commodity cost pressures for restaurant operators such as Darden Restaurants (Bloomberg).
- Darden Restaurants is slated to report quarterly results before the market open, with consensus expectations calling for earnings of $2.01 per share (periodicals).
- The company completed a share repurchase of 3.18 million shares, or about 2.68% of shares outstanding, totaling roughly $550.76 million under the buyback program announced in March 2024 (company filing).
- Darden provided fiscal 2026 guidance calling for total sales growth of 7.5% to 8.5%, same restaurant sales growth of 2.5% to 3.5%, and diluted EPS from continuing operations of $10.64 to $10.84 (company guidance).
- Under a newer authorization announced in June 2025, the company repurchased an additional 66,393 shares for approximately $135 million, indicating an ongoing focus on returning capital to shareholders (company filing).
Valuation Changes
- Fair Value Estimate edged down slightly to approximately $220.67 from about $221.33 per share. This reflects a marginally lower intrinsic value assessment.
- Discount Rate increased modestly to roughly 9.31% from about 9.24%. This implies a slightly higher required return and marginally more conservative risk assumptions.
- Revenue Growth ticked up slightly to about 5.52% from roughly 5.50%. This indicates a marginally more optimistic long term top line outlook.
- Net Profit Margin slipped fractionally to approximately 10.03% from about 10.04%. This suggests a nearly unchanged but very slightly lower profitability profile in the forecast period.
- Future P/E eased marginally to around 22.35x from about 22.38x. This points to a slightly less aggressive valuation multiple in the updated model.
Key Takeaways
- Seamless integration of Uber Direct in Olive Garden locations enhances convenience, expected to boost sales and average check size over time.
- Smaller prototypes for Yard House and Cheddar's Scratch Kitchen reduce costs and speed up openings, potentially accelerating unit growth and earnings.
- Declining guest counts and economic factors could pressure revenue growth, while operational complexities and supply chain disruptions threaten net margins.
Catalysts
About Darden Restaurants- Owns and operates full-service restaurants in the United States and Canada.
- Olive Garden's rollout of Uber Direct delivery service has been seamless and is now available in nearly all locations. This provides a meaningful sales-building opportunity over time as consumers increasingly opt for convenience, potentially boosting revenue and average check size.
- LongHorn Steakhouse's emphasis on quality and culture, such as the Grill Master Legend's program, continues to drive momentum. This level of focus has resulted in all-time high quality scores, potentially leading to increased customer loyalty and stronger comparable sales, positively impacting net margins.
- Darden is testing new smaller prototypes for some brands, such as Yard House and Cheddar's Scratch Kitchen. These prototypes lower construction costs and expedite new restaurant openings, enabling a potential acceleration in unit growth which should enhance revenue and earnings.
- The integration of Chuy's into Darden's operations promises efficiencies such as streamlined HR and supply chain processes, which could yield productivity gains and improve net earnings.
- Darden's strategic reintroduction of popular Olive Garden promotions, like the buy one take one offer and limited-time menu items, aims to drive foot traffic and maintain consumer interest, likely boosting revenue while leveraging existing menu items to maintain net margins.
Darden Restaurants Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Darden Restaurants's revenue will grow by 5.7% annually over the next 3 years.
- Analysts assume that profit margins will increase from 8.7% today to 10.0% in 3 years time.
- Analysts expect earnings to reach $1.4 billion (and earnings per share of $12.64) by about September 2028, up from $1.1 billion today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, up from 23.5x today. This future PE is greater than the current PE for the US Hospitality industry at 23.9x.
- Analysts expect the number of shares outstanding to decline by 0.4% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 9.28%, as per the Simply Wall St company report.
Darden Restaurants Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The casual dining industry is experiencing a decline in average same-restaurant guest counts, which may be indicative of underlying consumer spending challenges or shifts in dining preferences, potentially impacting Darden's future revenue growth.
- Despite the delivery channel rollout, the incrementality of delivery orders is still relatively low (40-50%), and the increase in operational complexity could pressure net margins if it fails to scale efficiently.
- Economic factors, such as the decline in consumer confidence and potential impacts from tariffs, could curb discretionary spending in the mid-to-lower income brackets, affecting the earnings of brands like Olive Garden and LongHorn, which are sensitive to economic downturns.
- A substantial portion of Darden's commodity costs is domestic, but any unforeseen disruptions in supply chain dynamics could affect food costs, leading to volatile net margins.
- High margin levels at Olive Garden are above historical expectations, which may not be sustainable if management opts to invest more aggressively in marketing and operational improvements to maintain growth, potentially impacting net earnings.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $233.286 for Darden Restaurants based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $255.0, and the most bearish reporting a price target of just $157.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.3 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 9.3%.
- Given the current share price of $211.85, the analyst price target of $233.29 is 9.2% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
