Darden Restaurants price target lowered to $240 at Evercore ISI on pricing concerns

Darden Restaurants (NYSE:DRI) is facing increased scrutiny from analysts, with Evercore ISI lowering its price target to $240 from $245 and Wells Fargo reducing its target to $200 from $225, both citing margin pressures and pricing challenges. Evercore ISI highlighted Darden's pricing strategy trailing broader inflation, while Wells Fargo pointed to weak profit flow-through and rising costs, including beef inflation, following a slight miss on Q1 2025 earnings. These revisions, alongside a recent 9% share price decline and downward earnings estimate adjustments by 17 analysts, underscore significant operational headwinds for the restaurant chain despite some underlying sales growth expectations.

Analysis

Darden Restaurants (DRI) is facing significant headwinds, evidenced by a recent 9% share price decline and downward revisions from analysts. Evercore ISI lowered its price target to $240, citing a critical gap between the company's pricing in the "high 2% area" and broader inflation of "3-4%," which prompted a 1% reduction in their EPS estimates. Similarly, Wells Fargo reduced its target to $200, pointing to weak profit flow-through, with a restaurant-level margin flow-through of approximately 19% and rising beef costs compressing profitability. These concerns are substantiated by Darden's fiscal Q1 2025 results, which missed analyst forecasts with an EPS of $1.97 against a $2.00 expectation and revenue of $3 billion versus a $3.04 billion forecast. The bearish sentiment is widespread, with 17 analysts revising earnings expectations downward. Despite these challenges, Evercore ISI maintains an "Outperform" rating, projecting over 4% same-store sales growth for Olive Garden and LongHorn Steakhouse in fiscal 2026 and basing its price target on a 21x P/E multiple on FY27 earnings, which is at the high end of the stock's five-year historical range.

Key Decisions for Investors

• Investors should closely monitor Darden's ability to manage margins, as its current pricing strategy is lagging inflation and rising commodity costs, directly impacting profitability.
• The stock's recent decline into 'oversold' territory may offer a tactical entry point, but this should be weighed against fundamental risks, including an earnings miss and negative revisions from 17 analysts.
• Consider that the bull case from Evercore relies on a premium 21x P/E multiple on FY27 estimates, a valuation that may be challenged if the company fails to deliver on projected same-store sales growth amid the current operational pressures.