The Institutions Shed Darden Restaurants International

The Institutions Shed Darden Restaurants International

Darden Restaurants International Is Another Reason Not To Trust The Rally 

Darden Restaurants (NYSE: DRI) gave the market another reason not to trust the rebound in equities when it reported earnings. The company not only missed on the top and bottom lines but tightened its guidance to a range below the consensus. The business isn’t bad or in dire straits but it is less than expected and produced downward pressure in the analysis sentiment. This means declining targets for revenue, earnings, and DRI share prices and a trend we don’t want to see continue. If this trend continues through the end of the Q1 reporting cycle we see no place for the broad market S&P 500 index to go but down. 

So, there are 22 analysts with current ratings on Darden Restaurant International, and 12 of them have issued commentary this year. Two of those commentaries came out days before the FQ3 results were released and the other ten after, all of them include price target reductions. The sentiment of the 12 is a Strong Buy/Outperform compared to the firm Buy consensus and the range of their price targets are $140 to $175 compared to the $163 consensus rating and includes the new low target which came from both Wedbush and BMO Capital Markets. The takeaway is the consensus price target is down 3% in the last 30 days and will probably head lower. It is also worth noting the downshift in sentiment is coincidental with an upshift in institutional selling. 

The institutions were net buyers throughout most of 2021 and pushed total holding to over 90%. That trend changed dramatically in Q1 of 2022 when the institutions sold about 15% of the market cap with shares trading near $132.50. This activity has put a top in the price action and is threatening to send shares even lower.

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Darden Whiffs And Lowers Guidance, Shares Wobble 

Darden Restaurant International had a good quarter with revenue of $2.45 billion up 41.6% versus last year. The problem is the revenue was expected to be slightly stronger, about 210 basis points stronger, and is accompanied by weak guidance that suggests the rebound has peaked and growth is priced into the market. The revenue is driven by a strong 38.1% comp that was bolstered by 31 new stores. 

On a segment basis, Olive Garden and Longhorn Steakhouse grew 30% and 31.6% respectively while Fine Dining advanced by 85% and the Other category 55%. The worst part, however, is that margins tightened more than expected due to food, materials, and labor costs and resulted in a wider miss on the bottom line. ON the bottom line, the $1.93 in GAAP earnings is up a dollar from last year but flat on a two-year basis and $0.17 short of the consensus. 

Turning to the guidance, the company is expecting revenue in the range of $9.55 to $9.62 billion for the year. This compares to the $9.60 consensus target and the earnings guidance is even weaker. Earnings are expected in a range with a high of $7.45 compared to the $7.50 consensus and we expect margin pressure to build in the near term at least. 

The Technical Outlook: Darden Restaurants International Is Set Up To Fall 

Price action in shares of DRI slipped in the wake of the earnings report but buyers stepped in to drive them higher by the end of the day. The caveat is that price action has fallen below the short-term 30-day EMA and is in danger of forming resistance at a former support level. If institutional selling continues we see this stock moving lower under the pressure and falling back down to $120. If that level does not hold as support a move down to $100 will become possible. If, however, price action is able to maintain support above the most recent low sideways range-bound trading is expected until later in the year. 

The Institutions Shed Darden Restaurants International

Companies in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Darden Restaurants (DRI)$122.39-2.4%3.95%16.98Moderate Buy$143.38