Raymond James raises Darden Restaurants stock price target on strong comps

Darden Restaurants (NYSE:DRI) posted stronger-than-expected fiscal Q4 results, with Olive Garden and LongHorn Steakhouse achieving comparable sales growth of 6.9% and 6.7% respectively, and exceeding EPS and revenue forecasts. This robust performance prompted Raymond James and KeyBanc to raise their price targets to $240 and $245, maintaining Outperform/Overweight ratings, citing Darden's strong margins, effective value strategies, and strategic growth initiatives including plans for 60-65 new restaurants in FY26 and a long-term outlook targeting 7-8% total sales growth. Despite the company's strong 52.35% one-year return and positive analyst sentiment, InvestingPro data suggests the stock, currently trading near its 52-week high, may be overvalued.

Analysis

Darden Restaurants (DRI) demonstrated significant operational strength in its fiscal fourth quarter, exceeding analyst consensus on both revenue and earnings per share, reporting $3.3 billion and $2.98 respectively. The performance was primarily driven by robust comparable sales growth at its flagship brands, with Olive Garden posting a 6.9% increase and LongHorn Steakhouse a 6.7% increase. This momentum is attributed to successful strategic initiatives, including Olive Garden's expansion of first-party delivery and effective value offerings that have protected its industry-leading store margins, which exceed 22%. The company's financial health is further evidenced by a 21.88% gross profit margin on $12.1 billion in LTM revenue. In response, multiple analysts, including Raymond James and KeyBanc, have raised their price targets, citing confidence in Darden's pricing discipline and growth strategy. Management has reinforced this positive outlook with FY26 guidance projecting 7-8% total sales growth, 2-3.5% same-restaurant sales growth, and the addition of 60-65 new restaurants. Despite this strong fundamental picture and a 52.35% total return over the past year, the stock is trading near its 52-week high, and signals from InvestingPro suggest that shares may be overvalued at current levels, creating a divergence between operational performance and valuation concerns.

Key Decisions for Investors

• Given the strong operational momentum, positive analyst revisions, and clear management guidance for 7-8% sales growth, investors may consider the stock a core holding in the consumer discretionary space, focusing on the long-term 10-15% total shareholder return target.
• Despite the fundamental strength, with the stock near its 52-week high and quantitative data suggesting potential overvaluation, investors should be cautious about initiating new positions at current price levels and may consider waiting for a more attractive entry point.
• Investors should closely monitor same-store sales trends and store-level margins in upcoming quarters to ensure the company can sustain its growth trajectory without sacrificing its industry-leading profitability, as any deceleration could challenge the stock's premium valuation.