Darden Might Outperform Its Guidance Again In FY2027

Investors might still be underestimating Darden (DRI). After the company closed the year with strong fourth-quarter results, Darden’s stock price has now recovered to about where it was at the beginning of the year. This company performed better than expected in the second half of 2026, and now the question is whether it can do that again. Darden’s current FY2027 guidance implies that its growth rate will slow down, although it’s still planning to buy back stock and that will add incremental EPS growth.

After the recent rally, it might look like Darden’s expected growth for FY2027 is priced in already, but that might not be true. But it’s also important to consider that Darden will have a shorter calendar year in FY2027, so it is realistic to expect the company to post much weaker revenue growth in its next fiscal year. The reason I think Darden could perform better than expected in 2027 isn’t because I expect it to post unusually strong revenue growth, it’s because the company’s margins could be stronger than expected.

The Calendar Helps Explain Why Darden’s 2027 Guidance Appears Weak

When it reported its fiscal 2025 results, Darden guided for 7% to 8% revenue growth and 2% to 3.5% comps. The final result for fiscal 2026 was 9.4% revenue growth and 4.5% comps, so the company beat its original guidance. You might think that beat would convince Darden’s management to release a more optimistic forecast for FY2027. But the company’s FY2027 guidance is similar to its original guidance for FY2026.

Darden reported full-year revenue of $13.21 billion, so the FY2027 guidance in its report is calling for 3% to 4% revenue growth and 2.5% to 3.5% comps. But this doesn’t necessarily mean the company’s revenue growth is slowing down because of the shorter calendar year. It might be better for investors to take a longer-term perspective here. It looks like Darden expects around 6% annual revenue growth and 3% comps if you look at it on a 2-year basis.

And I wouldn’t say that Darden’s guidance is really disappointing either. It looks like the company has consistent long-term performance goals and it’s meeting them, which makes sense because this is considered a well-managed restaurant group. Investors might be overreacting to short-term fluctuations because this company’s long-term guidance appears relatively consistent.

Checking Darden’s Margins

If Darden can continue to generate steady revenue growth, then the other thing I’d consider is whether it can maintain its margins. It expects 3% inflation and 3% comps in FY2027. If its traffic is stable and it raises its menu prices by 3% to match inflation, I’d expect its margins to be relatively flat. But it looks like its margins are actually rising right now. This company had an 11.5% operating margin in FY2024, an 11.3% operating margin in FY2025, and a 12.0% operating margin in FY2026. So, it looks like Darden’s pricing power is actually increasing and passing on cost increases isn’t a problem.

Darden Can Afford Buybacks and Its Dividend

Darden has 116.3 million diluted shares outstanding right now. It guided for 114 million shares at the end of FY2027. The company had 118.4 million shares at the end of FY2025, so it is willing to buy back 2 million shares per year. But it’s also worth considering whether Darden can afford to spend that much on buybacks because it also pays a dividend.

Darden pays a quarterly dividend of $1.62, so its total dividend expense for FY2027 would be $6.48 times 114 million, or $739 million. As of June 26th, its stock price was $214, so if it bought back 2.3 million shares, that would cost it $492 million. The cost of the buybacks and the dividends adds up to $1.231 billion. Meanwhile, Darden’s FY2027 guidance implies that it will earn $11.23 per share at the midpoint, so with 114 million shares outstanding, its net income would be $1.280 billion. So, Darden’s net income is high enough to cover its buybacks and its dividend, at least for the time being.

Comparative Valuation for Darden

It’s also worth considering how Darden’s valuation compares to other casual-dining restaurants’ valuations. Darden has a trailing P/E of 20 right now. I’d compare it to other well-managed casual-dining restaurant holding companies. Brinker International (EAT) has a trailing P/E of 17 and The Cheesecake Factory has a trailing P/E of 24. So, Darden’s valuation looks reasonable and this stock may be fairly priced in comparison to its peers.

Valuation for Darden

In the default scenario, Darden could post 3.5% revenue growth in FY2027 and its revenue would thus rise to $13.67 billion. If it maintained its 12% operating margin, its operating profit would be $1.640 billion. The company said it expected to pay a 13.5% tax rate in its report, so after subtracting $221 million in taxes, its net income would be $1.419 billion. If I divide that by 114 million shares, Darden’s FY2027 EPS would be $12.45.

Again, the midpoint of Darden’s EPS guidance is $11.23, so its guidance implies that its operating margin will be lower in FY2027. So, it’s worth considering a scenario where Darden’s operating margin was 11.5% instead. If its FY2027 revenue was still $13.67 billion, its operating profit would be $1.572 billion, its tax expense would be $212 million, and its net income would be $1.360 billion. And its EPS would be $11.93.

According to Yahoo Finance, analysts expect Darden to report EPS of $11.26 in FY2027, which is similar to the company’s guidance and lower than my estimate. If I divide its current price of $214 by $11.26, that’s a FY2027 P/E of 19. If Darden posted EPS of $12.45 instead, with a P/E of 19, its stock price would be $237. So, I’d say this stock could still rise 11%.

Conclusion

It’s realistic for Darden’s revenue growth to be lower in 2026 because of the shorter calendar year, so this restaurant holding company may meet expectations on revenue. But it also sounds like Darden is growing its same-store sales in line with inflation and should be able to maintain its margins. And even in the scenario where I consider the possibility that Darden’s margins will be lower in FY2027, it still looks like this company’s EPS guidance may be low. It’s also worth noting that this company outperformed its guidance in FY2026. So, it’s possible that Darden will also beat its current guidance and this stock may be undervalued.