Darden Restaurants Inc (DRI)

Conclusion

Darden Restaurants owns and operates full-service restaurant brands in the United States and Canada, including Olive Garden, LongHorn Steakhouse and Yard House. On 2026-11-09 the shares traded at 229.77 USD, giving a market capitalisation of 26.0 billion USD and an enterprise value of 32.4 billion USD.

The verdict is fair. Today's price-to-earnings ratio of 21.99 sits almost exactly on its ten-year median of 21.87, while enterprise value to EBITDA of 14.88 is above its median of 13.76. The discounted cash flow gives 249.83 USD per share at a discount rate of 8.9%, and the fair value band runs from 183.25 to 274.88 USD with a midpoint of 229.06 USD, a margin of safety of -0.3%. The fair value from historical multiples is 208.30 USD. The reverse DCF implies revenue growth of 7.0% a year, against 12.9% revenue growth delivered over five years and 6.7% growth in free cash flow per share.

The case rests on strong earnings quality, with free cash flow at 104.5% of earnings over the last twelve months, and on a return on invested capital of 18.1% against a cost of capital of 8.0%. The weakest numbers are a current ratio of 0.30, a net debt to EBITDA of 2.94, and a price-to-book ratio of 12.57 against a median of 6.95. A fall in cash generation or a further rise in leverage would weaken the case most.

Financial health

Financial strength is yellow: interest coverage of 9.0x and an earnings-based cushion support the company, while a current ratio of 0.30 and net debt to EBITDA of 2.94 pull it down. The quick ratio is 0.11 and debt to equity is 3.20. Interest coverage is 9.0x on a twelve-month basis, which is comfortably high. The Altman Z-score is 2.61, in the grey zone; the model was designed for manufacturers, so it is only a rough guide for a restaurant operator. Insolvency risk: medium, about 4.2% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is green, supported by a Piotroski score of 8 out of 9 and free cash flow conversion of 104.5% over twelve months and 94.8% over five years. The accrual ratio is -5.1%, which means reported earnings are backed by cash. Stock-based compensation is 0.6% of revenue, and free cash flow after it is 1.16 billion USD. The share count fell at a compound rate of 2.7% over five years, which reflects buybacks. The Beneish M-score is not available. Results have been mixed: the company beat estimates in 4 of the last 8 quarters and missed in 3, with an average surprise of -17.9%. Estimates for the current year were cut slightly over 90 days (-0.05%), and next year's estimates are flat (+0.08%).

Profitability

Profitability is green. The operating margin of 11.7% is above its ten-year median of 10.5%, and the net margin of 8.9% is close to its median of 8.7%. Return on invested capital is 18.1% against a weighted cost of capital of 8.0%, which gives a return above the cost of capital of 10.1%. Over five years the median return on invested capital was 15.4%. Return on equity of 57.2% is inflated by leverage: the DuPont split shows a net margin of 9.1%, asset turnover of 1.03 and an equity multiplier of 5.83. The return on capital, not the return on equity, is the figure to rely on.

Growth

Growth is green. Revenue grew at a compound rate of 8.0% over three years, 12.9% over five years and 6.7% over ten years. Earnings per share grew at 9.5% over three years, 17.0% over five years and 13.7% over ten years. Free cash flow per share grew at 7.9%, 6.7% and 8.6% over the same periods. Revenue rose in 8 of the last 10 years. Next year's earnings are expected to grow about 10.0%, as the estimate growth figure shows.

Valuation

Valuation is yellow, with a neutral verdict and a margin of safety of -0.3%. Today's multiples against their ten-year medians: price-to-earnings 21.99 against 21.87 (a premium of 0.6%), enterprise value to EBITDA 14.88 against 13.76 (8.1%), price to free cash flow 21.03 against 20.40 (3.1%), price to sales 1.94 against 1.72 (13.3%) and price to book 12.57 against 6.95 (80.9%). The discounted cash flow gives 249.83 USD per share at a discount rate of 8.9% and a terminal growth rate of 2.5%; about 59% of that value comes from the terminal value, so it must be read with caution. The fair value band is an order-of-magnitude estimate built on fixed assumptions, not a price target. The dividend yield is 2.7%, the forward yield 2.8%, and the payout on free cash flow is 56.8%.

Risks

The weakest number is the current ratio of 0.30, which means current liabilities are large relative to current assets; a cash squeeze would test this most. Net debt to EBITDA of 2.94 and debt to equity of 3.20 leave less room if earnings fall. The price-to-book ratio of 12.57 against a median of 6.95 means the valuation depends on earnings continuing, not on the asset base. Recent earnings surprises have been negative on average, and estimates for the current year were cut. The Beneish M-score is not available. The analysis has limits: it has no debt maturity schedule and no revenue by segment, so refinancing risk and the contribution of each brand cannot be checked.