If the results, the outlook, the valuation, and the analyst have anything to do with it, Darden Restaurants (NYSE: DRI) can hit new highs in 2023. The Q3 results were better than expected, showing underlying momentum in the restaurant rebound and this company. The guidance is equally optimistic and coupled with a valuation of 19X earnings compared to group leader Texas Roadhouse (NYSE: TXRH). 

Texas Roadhouse trades at a 22X multiple but yields almost 50% less, so it may not be the best choice for income-oriented investors. The takeaway is that analysts like this stock and have it pegged at a Moderate Buy, and the price target is trending higher. The latest update is from TD Cowen, which rates the stock at Outperform with a price target in new all-time high territory by high-single-digits. The current high price target of $175 is another $10 or 6% higher than that. 

"Darden should continue to take market share from competitors, in our view, supporting the top-line growth amid a modestly tougher consumer backdrop while cost inflation headwinds should ease over the next six months, helping to stabilize margin,” said Guggenheim in February when it initiated coverage at Buy with a target of $170.

Darden Restaurants Experiences Broad Recovery 

Darden Restaurants had a solid quarter highlighted by revenue growth, margin expansion, and outperformance. The $2.79 billion in revenue is up 13.9% compared to last year, beating by 220 basis points on broad-based strength. Olive Garden was the best performer, with comps up 12.3%, followed by 11.7% increases at Fine Dining establishments and Other and 10.8% growth at Longhorn Steakhouse. 

The margin was another area of strength, with the operating margin increasing by 30 basis points despite an increase in restaurant-level expenses. This left the GAAP earnings up 21.2% compared to last year and $0.09 better than the Marketbeat.com consensus. The strength also led to an increase in guidance with the new low-end range for revenue and earnings at the high-end of the previous range and above the analyst consensus targets. 

This means the dividend is safe, and share repurchases should continue. The dividend is worth 3.2%, well above the S&P 500 average and the highest in the restaurant group, and an attractive payout for the times. Repurchases totaled $124 million in the quarter or about .7%of the market cap and nearly $700 million is left on the current authorization. Based on the results and outlook, the market should expect repurchase allotments to increase at the end of the fiscal year or early in F2023.

Institutional Activity Drives Darden Higher 

The institutions have been quietly scooping up shares of Darden over the past year. Marketbeat’s institutional tracking tools show institutional buying outpacing selling by more than 2:1 over the past 12 months, and their activity is on the rise. Assuming this trend continues, the share price should increase to retest the current high and possibly move to a new one soon. 

The chart is promising; the action is trending higher but faces resistance at an all-time high. If the market can’t get above that level, DRI shares will remain range bound until later in the year. If this market can reach a new high, the 10% upside indicated by the high price target is likely just the beginning of this stock’s gains.