Market forces rained on the parade of Darden Restaurants, Inc. (NYSE:DRI) shareholders today, when the analysts downgraded their forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
Following the downgrade, the consensus from 24 analysts covering Darden Restaurants is for revenues of US$8.0b in 2021, implying a chunky 8.4% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to plunge 56% to US$2.28 in the same period. Before this latest update, the analysts had been forecasting revenues of US$9.2b and earnings per share (EPS) of US$6.65 in 2021. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a large cut to earnings per share numbers as well.
It’ll come as no surprise then, to learn that the analysts have cut their price target 38% to US$73.54. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Darden Restaurants, with the most bullish analyst valuing it at US$134 and the most bearish at US$37.00 per share. So we wouldn’t be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Darden Restaurants’s past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 8.4% revenue decline a notable change from historical growth of 6.2% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 9.4% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – Darden Restaurants is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we’d understand if readers now felt a bit wary of Darden Restaurants.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Darden Restaurants going out to 2024, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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