Back in September, we asked the somewhat rhetorical question, “As goes Darden, so goes the economy?” If that question turns out to mirror reality, then happy days are well on their way. Darden Restaurants (NYSE:DRI) has shrugged off slowdowns and shutdowns and even full lockdowns to not only gain ground in pre-market trading, but it's also managed to shrug off a new reduction in rank from the analyst community.
The Energizer Bunny of Mid-Tier Chain Restaurants
Darden Restaurants managed to gain a little over 3.5% at one point in pre-market trading, and as of this writing, remains one of our “most-upgraded” stocks. The new note of caution came in from BTIG, who lowered its assessment of Darden from its previous “buy” to its now-current “neutral” rank. That's not particularly much of a downgrade, essentially telling customers that maybe it's not such a hot idea to buy more shares right now.
Sure, there are some reasons to counsel caution when it comes to picking up Darden shares. With more states and localities picking up the lockdown path once more in the face of surging case numbers—though hospitalizations and deaths are still a comparatively minor proportion of those numbers—this will have negative impact on places like Darden, which depend on sit-down traffic to achieve their fullest potential. That's a potential short-term drag, along with other knock-on effects of people without jobs not having quite so much cash on which to eat out.
BTIG Bucks a Trend
While the impact of BTIG's downgrade is there, it's actually less substantial than you might think. Our latest research suggests that the company currently has 13 “hold” ratings and 19 “buy” ratings to its credit. Interestingly, this is the same ratio of “hold” to “buy” as was seen last month. It's only a shade off of what was seen three months ago, with 14 “hold”, 18 “buy” and one “strong buy”. So while some of the enthusiasm for Darden has slipped—there are no more “strong buy” recommendations—the overall consensus has been moving to “buy.”
A look at the analyst movement for the last month suggests there's a lot to like. Just two days ago, Robert W. Baird upgraded its own stance from “neutral” to “outperform,” pretty much the opposite of BTIG's stance. Over the course of November so far, three different analysts hiked their price target, which is a smart move given that even the consensus price target is well under where Darden is currently trading. That consensus price target only seems to go up, especially when considered over the long run. It's currently at $103.31, up from last month's $100.06 and up substantially from the figure seen six months ago of $88.03.
Just to round out the perspective, this is actually the first downgrade Darden has seen since back in July, when Gordon Haskett dropped its rating from “buy” to “hold”, and with it dropped its price target...from $82 to $81.
Now We're Fighting Back
Give BTIG credit for cautiousness here; it's clearly trying to err on the side of caution, but err is exactly what it seems to be doing. A recent report from Baird underscores why Darden—along with Texas Roadhouse (NASDAQ:TXRH)—is delivering success. Yes, we're seeing lockdowns come back in style, but with multiple vaccine candidates making the step up to vaccines—Pfizer (NYSE:PFE) recently noted that it would have 6.4 million doses ready to go within one day of landing full FDA approval—and several useful breeds of therapeutic treatment in place, the notion that we aren't much more ready to actually take the fight to coronavirus now than we were nine months ago is ludicrous at best.
Thus, the impact of lockdowns and the like should, all else being equal, lessen, and allow companies like Darden to get back to work fully, unimpeded by government mandates. Better yet, even with such measures in place, Darden has already demonstrated that it can bring out a solid value for diners. That helps keep people coming back, even if not in the fashion they may be used to, or may prefer. I know I've eaten at Darden restaurants lately—have you seen the specials Red Lobster has been running?—and that value is substantial.
Sure, there are still risks, and accounting for those risks makes BTIG's stance understandable. But Darden has already shown it can handle working in a lockdown environment, and it's proven to be one of the most resilient restaurant stocksaround. Buying in on Darden gives you a piece of that, so buy, but perhaps buy with a note of cautio
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