DCF Studio

    DRI · NYQ · Consumer Cyclical

    Darden Restaurants, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 213.67

    Market price

    USD 209.28

    Implied upside

    +2.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 5.6% of revenue against depreciation of 4.1%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 213.67+2.1%
    Exit multiple
    USD 259.60+24.0%
    Market price
    USD 209.28

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 14.3bnUSD 15.4bnUSD 16.6bnUSD 18.0bnUSD 19.4bn+8.0%
    EBITUSD 1.7bnUSD 1.8bnUSD 2.0bnUSD 2.1bnUSD 2.3bn+8.0%
    NOPATUSD 1.5bnUSD 1.6bnUSD 1.7bnUSD 1.9bnUSD 2.0bn+8.0%
    Add depreciation & amortisationUSD 579.8mUSD 626.2mUSD 676.3mUSD 730.4mUSD 788.8m+8.0%
    Less capital expenditureUSD -802.6mUSD -866.8mUSD -936.2mUSD -1.0bnUSD -1.1bn+8.0%
    Less increase in working capitalUSD 17.7mUSD 19.1mUSD 20.6mUSD 22.3mUSD 24.1m-8.0%
    Free cashflow to firmUSD 1.3bnUSD 1.4bnUSD 1.5bnUSD 1.6bnUSD 1.7bn+8.0%
    Discount factor0.96220.89070.82460.76340.7067-
    Present valueUSD 1.2bnUSD 1.2bnUSD 1.2bnUSD 1.2bnUSD 1.2bn-0.0%
    Present Value Of The ForecastUSD 6.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.725Reported 0.590, pulled toward 1.0 (Blume)
    Cost of equity8.99%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 23.8bn79.0% of capital
    Total debtUSD 6.3bn21.0% of capital, book value as a proxy
    Tax rate12.3%Effective, capped at statutory
    WACC8.02%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 213.67

    80% of EV

    Forecast FCFF, final year
    USD 1.7bn
    Capex at depreciation, working capital in reinvestment
    USD 2.1bn
    Less reinvestment at g/ROIC (8.0% of NOPAT)
    USD -164.6m
    Capitalised
    USD 1.9bn
    ROIC (reported)
    31.2%
    Terminal value, undiscounted
    USD 35.1bn
    Terminal value, discounted
    USD 24.8bn
    Enterprise value
    USD 31.0bn
    Less net debt
    USD 6.1bn
    Equity value
    USD 24.9bn

    Exit at 13.8x EBITDA

    Value per shareUSD 259.60

    83% of EV

    Terminal value, undiscounted
    USD 42.6bn
    Terminal value, discounted
    USD 30.1bn
    Enterprise value
    USD 36.3bn
    Less net debt
    USD 6.1bn
    Equity value
    USD 30.2bn

    Spread between methods: 19%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.02%293.25325.43366.70421.56498.11
    7.02%229.54249.23273.22303.13341.49
    8.02%185.44198.40213.67231.95254.22
    9.02%153.13162.11172.44184.46198.61
    10.02%128.45134.92142.22150.53160.09

    Outlined: this model. Green text: above today's price of 209.28. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year8.0%7.6%-0.4pp
    EBIT margin11.9%11.7%-0.2pp
    Discount rate8.0%8.1%+0.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.