CIBC Cuts Darden Restaurants to 'Sector Underperform'

Analyst John Glass cites continued performance issues at Red Lobster

CIBC World cut Darden Restaurants (DRI ) to sector underperform from sector perform.

Analyst John Glass cites continued performance issues at Red Lobster, and an anticipated significant second-quarter earnings miss, as well as management's too-optimistic outlook for the second half of 2003. He cut the $1.41 fiscal 2004 (May) earnings per share estimate to $1.38, and the $1.58 fiscal 2005 estimate to $1.54. He notes that first-quarter earnings per share were above his 38 cents estimate, but says Darden took an axe to second-quarter projections -- lowering the 18 cents forecast to 15 cents.

Glass says clearly the worst is still not behind the stock -- Red Lobster is the main reason; profits fell due to ineffective cost management. He says September results are expected to decline sharply on a poorly received, low-margin promotion at Red Lobster restuarants. Finally, Glass set a $19 price target.

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