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Why Analysts Are Optimistic about Darden’s Fiscal Q4 Earnings

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Fiscal Q4 2018 estimates

Analysts are expecting Darden Restaurants (DRI) to post adjusted EPS (earnings per share) of $1.35, which represents an increase of 14.4% from $1.18 in the corresponding quarter of the previous year.

Darden’s management has set EPS guidance for 2018 to be in the range of $4.75 to $4.80 for fiscal 2018. With Darden posting EPS of $3.43 in the first three quarters, the management expects EPS to be between $1.32 and $1.37 for the fourth quarter.

EPS growth is expected to be driven by revenue growth, a lower effective tax rate, and share repurchases. However, the decline in Darden’s EBIT (earnings before interest and tax) margin is expected to offset some of the growth in EPS.

Analysts are expecting Darden’s EBIT margin to fall from 10.6% to 10.3%. The increase in the cost of sales is expected to offset the benefits of lower SG&A (selling, general, and administrative) expenses, leading to a decline in the EBIT margin. Analysts are expecting Darden’s effective income tax rate to fall from 23.3% in the corresponding quarter of the previous year to 18.6%.

Darden repurchased approximately 2.5 million shares for $207.9 million between the beginning of fiscal 2018 and the end of fiscal Q3 2018. Share repurchases lower the number of shares outstanding, thus driving the company’s EPS.

Peer comparisons

During the same period, Texas Roadhouse (TXRH), Bloomin’ Brands (BLMN), and Brinker International (EAT) have posted EPS growth of 24.6%, 31.5%, and 14.9%, respectively.

Outlook

For the next four quarters, analysts are expecting Darden to post EPS of $5.18, which represents growth of 12.4% from $4.61 in the corresponding quarter of the previous year.

Next, we’ll look at Darden’s valuation multiple.

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