The firm said it raised its rating on the restaurant company as it believes Darden's operating improvements have the potential to drive significant earnings.
Darden operates the restaurant chains Olive Garden, Long-Horn Steakhouse, Yard House and Seasons 52, among others.
"We see potential for significant EPS upside as DRI implements wide-ranging improvements in operations, the cost structure, and capital efficiency. Our analysis points to potential bull-case earnings of ~$4.60 by FY17 (May YE), ~40% above the current consensus," Credit Suisse said in an analyst note.
Shares of Darden Restaurants are up by 0.94% to $67.70 in pre-market trading on Friday morning.
Separately, TheStreet Ratings team rates DARDEN RESTAURANTS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate DARDEN RESTAURANTS INC (DRI) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 7.5%. Since the same quarter one year prior, revenues slightly increased by 6.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 22.0% when compared to the same quarter one year prior, going from $109.70 million to $133.80 million.
- Net operating cash flow has remained constant at $365.10 million with no significant change when compared to the same quarter last year. Along with maintaining stable cash flow from operations, the firm exceeded the industry average cash flow growth rate of -11.64%.
- The debt-to-equity ratio is somewhat low, currently at 0.68, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.37 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Powered by its strong earnings growth of 55.38% and other important driving factors, this stock has surged by 28.54% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: DRI Ratings Report