Darden Restaurants (NYSE) was a full-service restaurant operator that was hard hit by the COVID-19 pandemic and shelter-at-home policies of different states.

As the economy stabilized, it quickly rebounded and saw 51% growth in sales for the first quarter of 2022, as well as 47.5% growth in same-store sales. Bullish I believe in the stock.

Wall Street was anticipating the company’s rapid comeback. This has sent shares up to new heights in recent months.

Is there any upside left? According to Wall Street analysts, the shares are up 11.5%.

The average target price is $171.29. There are high and low forecasts for $185.

TipRanks has given the company an average Smart Score of 9. This score is due to its strong fundamentals, technicals, as well increased hedge fund activity.

The company’s headwinds as well as tailwinds make it difficult to forecast where the stock will be heading in the coming 12 months.

Headwinds, Tailwinds

As is the case with businesses across America, Darden faces the headwinds of rising food and energy prices, and labor shortages, raising its operating costs. 

Darden faces tailwinds such as the American economy opening up and increasing vaccination rates which will make dining out more enjoyable.

The pandemic has also impacted the savings rates of American households, which are at a tailwind. These savings can be used to eat out.

Many businesses including restaurants have used these tailwinds so far to increase their prices and pass on the increased costs to customers.

Full-service restaurants need to find ways to keep their profits up, as dining out is an optional activity. Darden’s competitive advantages are crucial for them to capitalize.

Multiple Advantages

Darden Restaurants is a collection of 1,834 full-service brand name restaurants in the U.S. and Canada: 875 under Olive Garden; 533 under LongHorn Steakhouse name; 170 under Cheddar’s Scratch Kitchen; 81 under Yard House; 63 under The Capital Grille, 44 under the Seasons 52; 26 under Eddie V’s Prime Seafood brands; and 42 under Bahama Breeze.

Darden’s ability to manage many restaurants of different brands gives him the opportunity for economies-of-scale that reduce costs and increase profitability. Darden Restaurants can increase its sales by opening additional stores, which will be between 35 and 40 during fiscal 2022.

Bottom Line 

Darden Restaurants is well-positioned to ride the re-opening of the U.S. economy, and deliver superior returns to its stockholders.

Disclosure: At the time of publication, Panos Mourdoukoutas no position in Darden Restaurants

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