Analyst Note| Sean Dunlop |
Narrow-moat Darden Restaurants reported strong fiscal first-quarter results, with system sales of $2.3 billion nearly 12% higher than prepandemic figures, implying just shy of 4% annualized growth. The firm defrayed input cost inflation via sales leverage and operational efficiencies, generating consolidated restaurant margins of 20.9%, nearly 3 percentage points better than two-year-ago figures (18.1%). Much of this we expect Darden to maintain, as our normalized forecast anticipates 19.8% margins, 180 basis points higher than the five-year historical average). While we have raised our fair value estimate to $128 per share from $124 as a result of lower near-term marketing expenditures and time value of money, the shares look expensive, trading at a 20%-25% premium to our fair value estimate after a 5.5% runup after the earnings release.