Darden Restaurants is due for a pause after a recent rally, according to Baird. Analyst David Tarantino downgraded the Olive Garden parent to neutral from outperform, saying the “risk/reward looks more balanced” following the stock’s recent outperformance. Including dividends, the company’s returned 1% to shareholders, while the S & P 500 has lost 16%. Darden shares have rallied more than 16% in the fourth quarter. “We still have a very positive view of the company’s internal operating fundamentals, and believe DRI is on track to deliver good results in FQ2-FQ3, but when factoring in the year-to-date outperformance for the shares and the lingering risks related to the macro outlook, we simply believe the risk/reward on DRI has become more balanced at current valuation metrics,” Tarantino said. While both the company and the broader casual dining industry have held up decently, conditions favoring the sector are beginning to shift and signal a potential slowdown in 2023, Tarantino said. “While we would consider Darden relatively well positioned to navigate a slower economy, we highlight risk that tougher macro conditions could cause revenue trends to lag current model assumptions for FQ4/F2024, potentially creating some risk to earnings estimates,” he said. Along with the downgrade, Baird upped its price target on the stock to $150 a share, implying that the stock should hover near current levels. The stock’s down 2.5% this year. Tarantino remains confident in the long-term outlook for Darden Restaurants and said pullbacks in the stock, or increased confidence in the casual dining industry, would warrant a positive sentiment shift. — CNBC’s Michael Bloom contributed reporting
