The inventory price tag of Darden Eating places, the organization that owns common chains this kind of as Olive Backyard and Longhorn Steakhouse, may well have already seen its best times.
Darden Eating places declared on Monday that it is acquiring Texas-centered restaurant chain Cheddar’s Scratch Kitchen for $780 million. The news boosted the inventory price tag by about 9%, but a group of Credit Suisse analysts warn that continued upside is minimal.
“DRI proceeds to stand out as a best-inclass operator in just informal eating but we imagine upside to the inventory is minimal,” the financial institution explained.
According to Credit history Suisse, the stock’s valuation fully captures their most sensible “blue sky circumstance,” that is to say the firm’s existing valuation is at the bank’s forecasted ceiling. The financial institution also explained the firm’s acquisition of Cheddar’s has some challenges:
“We see quite a few probable challenges with Cheddar’s, together with unsure expansion outlook (unit depend is flattish considering that 2015), probable cannibalization of Olive Backyard (mgmt. cited OG as a major competitor to Cheddar’s) and danger of distracting mgmt. from concentrating on driving share gains at other brand names.”
But that is not all.
The financial institution also pointed out that exact-retailer profits at Darden’s Longhorn Steakhouse have slowed for quite a few quarters.
As this kind of, Credit history Suisse has as a price tag target of $74, down below its existing price tag of $eighty two.53.