Darden Restaurants (DRI): Valuation Update Following Strong Earnings and $1 Billion Buyback Announcement

Darden Restaurants (DRI) is in the spotlight this week, thanks to a combination of its latest earnings results and a brand-new $1 billion share repurchase program. The company’s adjusted earnings per share came in higher than expected, and management also raised guidance for the full year, indicating increased confidence in the road ahead. Beyond the strong headline numbers, this significant buyback program is a clear signal from Darden’s leadership that they see long-term value in their own stock.

This series of positive developments fits into a larger story for Darden. The stock has climbed nearly 38% over the past year, outperforming many consumer peers and the broader market. Momentum has eased somewhat in the past three months, but with year-to-date gains still around 12%, investors might wonder if the stock still has room to grow. The company’s revenue and profit growth have both trended upward, highlighting the operational progress that is attracting renewed interest now.

After this surge, some investors may be questioning whether Darden Restaurants is now an attractive option at today’s prices, or if the market has already accounted for all the good news about future growth.

Most Popular Narrative: 10% Undervalued

According to community narrative, Darden Restaurants is currently considered undervalued, with projections suggesting upside potential even after recent gains.

The analysts have a consensus price target of $232.778 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 among analysts, with the most bullish reporting a price target of $255.0 and the most bearish reporting a price target of just $157.0.

How are analysts arriving at this bullish view? There is a growth formula brewing under the surface, hinting at ambitious profit and revenue forecasts paired with a higher-than-industry profit multiple. Interested in which optimistic assumptions are supporting this valuation? The numbers that drive this target may be surprising.

Result: Fair Value of $232.78 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, if guest counts soften or supply chain pressures increase, Darden's bullish outlook could be challenged, making future revenue and margin growth less certain.

Find out about the key risks to this Darden Restaurants narrative.

Another View: Discounted Cash Flow Tells a Different Story

Taking a look at Darden Restaurants through our DCF model, we find results that challenge the more optimistic outlook of the analyst consensus. This approach suggests the shares may actually be above fair value. Could this reveal a hidden risk, or does it simply reflect the market’s expectations for future growth?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Darden Restaurants for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Darden Restaurants Narrative

If you see things differently or prefer to dig into the numbers on your own, you can quickly craft a unique narrative in just a few minutes using do it your way.

A great starting point for your Darden Restaurants research is our analysis highlighting 4 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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