Olive Garden 'Outpaces' The Casual Dining Space, Which Is A Good Thing For Darden

Stephens maintained its Equal-Weight rating on Darden Restaurants, Inc. (NYSE: DRI), which reported solid second quarter results driven by continued strength in its Olive Garden segment.

Darden reported adjusted EPS of was $0.64 in line with consensus. Olive Garden posted its ninth consecutive quarter of positive same-store sales growth at 2.6 percent, ahead of consensus estimate of 2 percent growth.

“DRI continues to outpace the casual dining space, with consistent performance as they highlight convenience and value in their restaurants,” analyst Will Slabaugh wrote in a note.

However, Longhorn Steakhouse reported softer SSS growth of 0.1 percent compared to Street estimate of 1.4 percent. However, the analyst is encouraged to hear that new restaurants are performing up to the company's expectations.

“{W]e would look for the brand's more typical "steak authority" promotional strategy, combined with a heightened focus on menu simplifications, to improve performance going forward,” Slabaugh continued.

The company reiterated its FY 2017 guidance blended SSS growth estimate of 1.0 percent to 2 percent (vs. consensus of +1.4 percent) as well as adj. EPS of between $3.87 and $3.97.

Meanwhile, Slabaugh cut his FY 2017 blended SSS growth estimate to 1.5 percent from 1.7 percent, with OG SSS growth estimate being raised to 2 percent from 1.9 percent. The analyst also reaffirmed his FY17 adj. EPS forecast of $3.93.

However, Slabaugh remains on the sidelines as most benefits are priced in at these levels. That said, he views the initial stock reactions in casual dining as favorable for the upcoming EPS season.

At last check, shares of Darden were up 0.59 percent to $76.13. Slabaugh has a price target of $75 on the stock.

Image: Mike Mozart, Flickr