DARDEN RESTAURANTS INC (DRI) stock intrinsic value fair value estimate & owner earnings analysis

Darden Restaurants owns and operates roughly 2,200 company-run restaurants across nine brands. Olive Garden and LongHorn Steakhouse together generate about two-thirds of sales, alongside a Fine Dining group (Ruth's Chris Steak House, The Capital Grille, Eddie V's) and an Other Business group (Cheddar's Scratch Kitchen, Yard House, Chuy's, and others). The company has grown partly by opening new restaurants and partly through two recent bolt-on acquisitions: Ruth's Chris Steak House, bought for roughly $700 million in June 2023, and Chuy's Holdings, bought for about $650 million in October 2024. Both were funded mostly with new debt, so borrowings roughly doubled over that stretch before being paid down somewhat in the most recent year. We measure the cash the business generates for owners after the spending needed to keep existing restaurants running, separate from spending to open new ones and separate again from the cash used for the two acquisitions, which we treat as their own capital decisions rather than ordinary reinvestment. Over the five years since pandemic disruption ended (fiscal 2022 through fiscal 2026; Darden's fiscal year ends in late May), that figure has run from about $6.60 to $9.25 per share, with a typical (median) year at about $8.85 per share. We use that median, rather than the most recent year alone, as our estimate of normal earning power, because any single year can be flattered or hurt by working-capital timing or by how much new-store spending happens to fall in that year. We excluded fiscal 2020 and 2021 entirely from this measure: those were the two pandemic years when dining rooms were closed or restricted for extended periods, and results from them do not describe the business as it operates today. We also gave less weight to the smaller, pre-2022 version of the company, since the Ruth's Chris and Chuy's additions have meaningfully changed its scale and mix. The recent trend is encouraging. In fiscal 2026, same-restaurant sales grew at Olive Garden (+4.0%), LongHorn Steakhouse (+7.2%), the Fine Dining group (+1.2%), and Other Business (+3.9%), with LongHorn gaining both price and guest traffic. The one soft spot is Fine Dining, where the higher-end steakhouse and seafood concepts saw a small decline in guest counts even as average checks rose, consistent with pressure on discretionary, higher-priced dining. Darden is also winding down its smallest brand, Bahama Breeze, closing or converting the remaining locations by the end of fiscal 2027 - a modest, deliberate pruning rather than a sign of broader trouble. We valued the shares by projecting cash generation ten years forward and adding a value for everything beyond that, discounted at a flat 6% (roughly the long-term government bond yield plus a small margin; we use this same rate for every company we look at, so it never does the job of pricing risk - that job is done entirely by comparing better and worse outcomes for the business). Our bear case - a genuinely bad outcome, not just a soft quarter - assumes a broader pullback in consumer discretionary spending hits casual-dining traffic for several years, hitting the pricier Fine Dining brands hardest, while beef and other commodity costs rise faster than pricing can offset. The added debt from the two acquisitions becomes a real constraint on flexibility, though not a threat to solvency, and buybacks slow. Per-share cash generation falls to roughly $6.20 before gradually recovering over the decade; we do not think the brands or restaurants need to be run down, only that growth stalls for a period. This produces a value of roughly $150 per share. Our base case assumes the current pattern continues at a somewhat more moderate pace than the last two years: mid-single-digit combined price and traffic growth at Olive Garden and LongHorn, an unremarkable but successful integration of Ruth's Chris and Chuy's, continued modest new-restaurant growth, and ongoing share buybacks. This produces a value of roughly $247 per share. Our bull case assumes Darden keeps taking share from weaker or closing competitors in a casual-dining industry that has seen real thinning of the herd in recent years, that the newly acquired brands scale faster and more profitably than expected, and that buybacks accelerate as free cash flow grows. This produces a value of roughly $368 per share. In all three cases, more than half of the estimated value comes from what the business is likely to earn beyond the next ten years - in the bull case, more than two-thirds of it. We think that is reasonably well supported: Darden's restaurants are ordinary physical assets that get remodeled and replaced on a normal cycle already paid for out of the cash-generation figure above, its major brand names are not the kind of asset that expires on a fixed date, and it has now run a diversified, multi-brand model successfully through two full economic cycles, including the pandemic. That said, we deliberately capped the growth rate built into that long-run estimate at a modest 1% per year, well below Darden's recent growth, because a long-duration estimate like this is easy to overstate. On price: given the spread between our bear and base cases (bear at about 60% of base), the margin-of-safety price is roughly $184 - a meaningful discount to our estimate of normal value, sized to the real uncertainty in a business exposed to consumer discretionary spending and now carrying more acquisition-related debt than it did three years ago, but not sized as though this were a speculative or troubled company, because it is neither. We did not look at the current share price while building any of the above; that comparison comes after. One item we could not fully verify from the filings: Darden does not separately disclose the exact revenue Ruth's Chris and Chuy's contributed in their first partial year of ownership, so we estimated it from segment-level disclosures in order to avoid crediting acquired revenue as if it were organic growth funded by ordinary capital spending. This affects only a modest part of the ten-year projection, not the current-earnings estimate itself.