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Is Darden's Stock Really 'Unreasonably Cheap' Ahead of Q2 Earnings?

MarketDash Editorial Team
14 hours ago
Darden Restaurants reports Q2 results Thursday, and analysts are debating whether the underperforming stock has become a compelling value play despite ongoing challenges in the restaurant sector.

Darden Restaurants Inc. (DRI) reports second-quarter earnings Thursday before the opening bell, and the setup is interesting. The stock has lagged its peers this year, analysts are cutting price targets left and right, but at least one firm thinks the market has gotten a bit ridiculous about the whole thing.

What Wall Street Expects

The consensus calls for second-quarter revenue of $3.07 billion, up from $2.89 billion in the same quarter last year. On the bottom line, analysts are looking for earnings per share of $2.10, compared to $2.03 a year ago.

Those expectations come with a caveat though. Darden has missed revenue estimates in eight of the past 10 quarters, including last quarter. The earnings picture is better but still spotty, with the company beating EPS estimates in six of the last 10 quarters but missing in the most recent report.

The 'Unreasonably Cheap' Argument

Guggenheim analyst Gregory Francfort makes a compelling case in a note this week. He maintains a Buy rating while trimming his price target from $235 to $230, but his real message is about valuation.

Darden's stock has underperformed other restaurant companies in 2025. With high single-digit growth expected, the stock trades at what would be a 16.6x price-to-earnings multiple. Francfort thinks that's absurd for what he calls "a high quality restaurant business with robust top and bottom line growth."

He acknowledges the restaurant sector has been tough, and stocks like Darden have lagged the S&P 500. "But we also think DRI's shares have gotten unreasonably cheap vs the market," he writes.

The analyst expects 8% earnings per share growth over the next two years. He also sees smaller brands like Cheddar's and Yard House contributing more meaningfully going forward. "Darden has also gotten Cheddar's and Yard House's store economics into a place where both can contribute to unit growth going forward, helping to diversify the growth opportunity and also resetting up the pace of unit growth," Francfort noted.

On the cost side, the second fiscal quarter could see peak inflation pressure, though beef represents a smaller portion of Darden's cost structure compared to some competitors, which might provide some cushion.

What Other Analysts Say

Guggenheim isn't alone in reassessing Darden, though the consensus is less enthusiastic. Jefferies maintained a Hold rating while cutting its price target from $210 to $200. Morgan Stanley kept an Overweight rating but lowered its target from $238 to $236. Stephens & Co held at Equal Weight with a reduced target of $205, down from $215. Evercore ISI Group maintained Outperform but dropped its target from $240 to $225.

Notice a pattern? Everyone's trimming targets, but the bulls are staying bullish.

The Traffic Numbers Look Solid

Here's where things get interesting. Traffic data from Placer.ai suggests Darden's brands are performing well where it counts: getting people through the door.

Olive Garden, which led the way in the first quarter with same-restaurant sales growth of 5.9% year over year, saw visits up 6.1% in August, 2.2% in September, and 3.6% in October compared to last year.

LongHorn Steakhouse posted even stronger numbers, with visits up 5.7%, 3.3%, and 8.2% in August, September, and October respectively. Cheddar's Scratch Kitchen showed visits up 4.4%, 0.6%, and 4.5% over the same months.

Overall, traffic for Darden's brands increased 3% in the calendar third quarter year over year. Since the company's fiscal second quarter covers part of August, all of September and October, and part of November, these numbers should feed directly into Thursday's report.

What to Watch

After the first quarter, Darden raised its fiscal 2026 sales outlook while keeping earnings per share guidance unchanged. Whether that guidance holds or changes will be a key focus Thursday.

The first quarter showed double-digit sales growth driven by acquisitions and same-store sales gains, even though the numbers came in below estimates. Investors will want to see continued year-over-year growth in Q2, supported by the visitor trends, same-store sales, and new unit openings.

Darden stock closed up 2.7% at $190.56 on Tuesday, still well within its 52-week range of $159.67 to $228.27. Shares are up just 2.1% year-to-date in 2025, which helps explain why analysts are debating whether it's become a value opportunity or just cheap for a reason.

Back to News

Is Darden's Stock Really 'Unreasonably Cheap' Ahead of Q2 Earnings?

MarketDash Editorial Team
14 hours ago
Darden Restaurants reports Q2 results Thursday, and analysts are debating whether the underperforming stock has become a compelling value play despite ongoing challenges in the restaurant sector.

Darden Restaurants Inc. (DRI) reports second-quarter earnings Thursday before the opening bell, and the setup is interesting. The stock has lagged its peers this year, analysts are cutting price targets left and right, but at least one firm thinks the market has gotten a bit ridiculous about the whole thing.

What Wall Street Expects

The consensus calls for second-quarter revenue of $3.07 billion, up from $2.89 billion in the same quarter last year. On the bottom line, analysts are looking for earnings per share of $2.10, compared to $2.03 a year ago.

Those expectations come with a caveat though. Darden has missed revenue estimates in eight of the past 10 quarters, including last quarter. The earnings picture is better but still spotty, with the company beating EPS estimates in six of the last 10 quarters but missing in the most recent report.

The 'Unreasonably Cheap' Argument

Guggenheim analyst Gregory Francfort makes a compelling case in a note this week. He maintains a Buy rating while trimming his price target from $235 to $230, but his real message is about valuation.

Darden's stock has underperformed other restaurant companies in 2025. With high single-digit growth expected, the stock trades at what would be a 16.6x price-to-earnings multiple. Francfort thinks that's absurd for what he calls "a high quality restaurant business with robust top and bottom line growth."

He acknowledges the restaurant sector has been tough, and stocks like Darden have lagged the S&P 500. "But we also think DRI's shares have gotten unreasonably cheap vs the market," he writes.

The analyst expects 8% earnings per share growth over the next two years. He also sees smaller brands like Cheddar's and Yard House contributing more meaningfully going forward. "Darden has also gotten Cheddar's and Yard House's store economics into a place where both can contribute to unit growth going forward, helping to diversify the growth opportunity and also resetting up the pace of unit growth," Francfort noted.

On the cost side, the second fiscal quarter could see peak inflation pressure, though beef represents a smaller portion of Darden's cost structure compared to some competitors, which might provide some cushion.

What Other Analysts Say

Guggenheim isn't alone in reassessing Darden, though the consensus is less enthusiastic. Jefferies maintained a Hold rating while cutting its price target from $210 to $200. Morgan Stanley kept an Overweight rating but lowered its target from $238 to $236. Stephens & Co held at Equal Weight with a reduced target of $205, down from $215. Evercore ISI Group maintained Outperform but dropped its target from $240 to $225.

Notice a pattern? Everyone's trimming targets, but the bulls are staying bullish.

The Traffic Numbers Look Solid

Here's where things get interesting. Traffic data from Placer.ai suggests Darden's brands are performing well where it counts: getting people through the door.

Olive Garden, which led the way in the first quarter with same-restaurant sales growth of 5.9% year over year, saw visits up 6.1% in August, 2.2% in September, and 3.6% in October compared to last year.

LongHorn Steakhouse posted even stronger numbers, with visits up 5.7%, 3.3%, and 8.2% in August, September, and October respectively. Cheddar's Scratch Kitchen showed visits up 4.4%, 0.6%, and 4.5% over the same months.

Overall, traffic for Darden's brands increased 3% in the calendar third quarter year over year. Since the company's fiscal second quarter covers part of August, all of September and October, and part of November, these numbers should feed directly into Thursday's report.

What to Watch

After the first quarter, Darden raised its fiscal 2026 sales outlook while keeping earnings per share guidance unchanged. Whether that guidance holds or changes will be a key focus Thursday.

The first quarter showed double-digit sales growth driven by acquisitions and same-store sales gains, even though the numbers came in below estimates. Investors will want to see continued year-over-year growth in Q2, supported by the visitor trends, same-store sales, and new unit openings.

Darden stock closed up 2.7% at $190.56 on Tuesday, still well within its 52-week range of $159.67 to $228.27. Shares are up just 2.1% year-to-date in 2025, which helps explain why analysts are debating whether it's become a value opportunity or just cheap for a reason.