Photo: Red Lobster
Citigroup just raised its price target on Darden Restaurants from $53 to $58. The stock, which was already rated a buy, was also added to Citi’s exclusive Top Picks Live list.Darden Restaurants is the parent company of Red Lobster, Olive Garden, LongHorn Steakhouse, Bahama Breeze, and Capital Grille.
Citi analyst Alvin Concepcion thinks industry-wide sales trends are healthy and Darden in particular will benefit from significant hedges on food costs. Here’s what he had to say:
Given recent sharp declines in consumer confidence investor sentiment has turned negative on casual dining trends. However, we sense the industry has actually held up well over the past couple of months, and given that DRI accounts for about 20% of total industry sales we think this bodes well for their top-line trends. Regarding food costs, DRI est’s food cost inflation to come in at 5-5.5% in FY12. Notably, 80% of its food costs are locked in for C’11, and while DRI has limited coverage for FY12 (about 25%), the co. seems confident that many of its key items are expected to see price declines. Despite commodity cost increases, DRI expects to grow both CRM and EBIT margins in F’12 driven by sales leverage, price increases, and cost cutting initiatives.
To make space for Darden Restaurants, Citi booted Hain Celestial—the maker of Celestial Seasonings tea—out of the Top Picks Live list.
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