stock is falling early Wednesday, after BTIG cut its rating on the Olive Garden owner, citing the recent rally.
Analyst Peter Saleh downgraded Darden (ticker: DRI) to Neutral from Buy, after the shares surpassed his now-withdrawn $108 price target. While he thinks that investors are right to be optimistic about the company’s sales and profit improvement in a post-pandemic world, he thinks much of that recovery is already baked in at its current price.
“We continue to believe Darden will be a long-term market-share gainer and beneficiary of the industry disruption seen this year, though with sales still trending negative, the recovery in shares leads us to move to the sidelines rather than significantly up our price target,” he notes, as it’s “hard for us to see further drivers of upside at current levels.”
Restaurant-stock investors as a whole have been looking eagerly toward a vaccine in 2021, but that is still many months away. In the interim, Saleh points to lackluster traffic data from recent months, which suggests that the near-term recovery has “somewhat stalled,” a pattern that’s likely to only intensify as winter makes outdoor dining less appealing in many parts of the country.
In addition, he notes that while the company has reinstated its dividend, which it suspended this spring in response to the pandemic, it did so at only 30 cents a share, compared with 80 cents before Covid-19. He thinks getting the payout to previous levels will be necessary to drive the stock higher.
Darden stock is up just over 4% year to date, but the shares have gotten a big boost recently from reopening hopes in the wake of positive vaccine moves: In the past three months, the stock is up more than 37%.
By contrast, Robert W. Baird analyst David Tarantino raised his rating on Darden to Outperform from Neutral earlier this week, with a $132 price target, as he thinks more normalized traffic and reduced competition will boost the stock.
Darden is off 1.7% to $111.50 in recent trading.
Write to Teresa Rivas at [email protected]