Darden Restaurants (DRI)

Total return at 5 years: 6.9%/year = 3.1% appreciation + 3.8% dividend. The target price ($232) is ex-dividend; the $41 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $288 · Multiples $222) exceeds the market price ($200).

Today — fairly valued: at $200 trades ~10.1% below its value discounted to today (~$222); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($232) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$142.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($200) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-3.0%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1 bn of owner earnings in year 5 (vs ~$1.5 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM to Aug 30, 2026 (first quarter of fiscal 2027; US$13.367bn of sales), which still contains the 53rd week of fiscal 2026 in its fourth quarter —it added 2.1 percentage points to sales growth and US$0.25 to earnings per share in that fiscal year—, a calendar effect that leaves the year-1 window. On Sep 24, 2026 the company reaffirmed all of its fiscal 2027 guidance (8-K): sales of US$13,600-13,750 million (midpoint +3.5%), diluted earnings per share of US$11.10-11.35 with 114 million average diluted shares, net income of US$1,260-1,290 million, EBITDA of US$2,260-2,290 million with depreciation and amortization of US$0.60bn, and capex of US$0.875bn. Year 1 is the 12-month window after the first quarter and is built by levels: fiscal 2027 guided at the midpoint (US$13.675bn) minus the actual first quarter (US$3.200bn) plus a first quarter of fiscal 2028 with the year-2 growth rate (4.5%), which gives US$13.82bn (+3.4% over the TTM). The year-1 net margin (9.32%) and operating margin (12.25%) come from the two guidance anchors and yield earnings per share of about US$11.4 over the window, consistent with the guided range plus a higher first quarter of fiscal 2028. The step from +3.4% to +4.5% in year 2 has a named cause: the extra week of fiscal 2026 is no longer in the base, and the conversion of Bahama Breeze is completed in the fourth quarter of fiscal 2027; the path then decelerates smoothly toward a durable rate of 4.0% by year 5. The year-0 operating margin (11.7%) is the reported TTM, not normalized; it includes a gain on asset disposals of US$3.9 million in the first quarter (against US$42.0 million in the prior-year first quarter, which leaves the window). The buyback is material (US$709.8 million over the last twelve months; US$1.3bn remaining under the US$1,500 million program) and is modeled with an explicit path of declining shares from the 114.4 million diluted shares of the first quarter, identical in the three scenarios; since dividends plus buybacks already exceed reported free cash flow, no additional cash is accumulated. The bridge debt (US$2.616bn) includes US$0.980bn of short-term debt and current portion.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $232 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $200, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $232 in 5 years plus $41 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $222. Against the current market price ($200), the margin of safety is 10.1% (trades below the maximum → there is margin) and the total return at that price would be 6.9% annually.

• Total return at market price. The multiples approach projects a +7% five-year total return in the base scenario, placing the stock at the Fairly valued level.
• Current entry multiple. At the current market price, the stock trades at 16× over trailing-twelve-month earnings, with compression projected to 11× by year 5 of the base scenario.
• Margin of safety. It trades close to intrinsic value, far from the required margin of safety. relative to today's value, calculated at the method's floored risk-free rate.
• Dividend yield. The current dividend of US$6.48 per share (run-rate) represents a yield near 3.0% at the market price, with a streak of annual increases that contributes to the total return.

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (115%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Predictable cash generation. Operating cash flow grew consistently over the last four fiscal years, from US$1,553 million in fiscal 2023 to US$1,853 million in fiscal 2026.
• Return on capital. Return on invested capital sits well above the 10% bar, consistent with a high-operating-margin business on a moderate capital base.
• Reinvestment runway. The fiscal 2027 plan calls for between 75 and 80 new openings on a base of 2,373 restaurants, with capital investment per unit of between US$3.8 and US$10.2 million depending on the brand.
• Conservative accounting. Impairments and closure costs for Bahama Breeze are explicitly and separately recognized in the non-GAAP reconciliation.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The four drivers reflect the mechanics of the business's growth: total sales (the combined result of unit openings, comparable sales, and acquisitions), operating income (the operating leverage over that sales base), share buybacks (the pace of capital return that supports earnings per share), and dividend per share (the most predictable capital return policy). All four come directly from XBRL levels from fiscal 2023 to fiscal 2026, with no estimated or invented data.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-ago-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Total sales growth. Total sales rose from US$10,488 million in fiscal 2023 to US$13,211 million in fiscal 2026, with contributions from unit openings, comparable sales, and acquisitions.
• Comparable restaurant sales. Combined comparable restaurant sales growth was 4.5% in fiscal 2026, with LongHorn Steakhouse leading at 7.2%.
• Moderate guidance for fiscal 2027. The company guided total sales of between US$13,600 and US$13,750 million for fiscal 2027, just +3.5% at the midpoint, after losing the boost from the 53rd week of fiscal 2026.
• Earnings-per-share expansion. Despite moderate sales growth, the guided diluted earnings per share of US$11.10-11.35 implies margin expansion and the effect of share buybacks.

• Purchasing and distribution scale. More than 1,400 suppliers in more than 30 countries and a proprietary distribution subsidiary that retains ownership of inventory, a scale advantage disclosed by the company itself.
• Brand position at Olive Garden. Olive Garden is, per the filing, the largest full-service Italian restaurant operator in the United States, with 949 company-owned units.
• Employee turnover below the industry. Hourly employee turnover of 67% and management turnover of 15% in fiscal 2026, both below the restaurant industry benchmarks.
• Concentration in the United States. The business operates predominantly in the United States; franchise and managed-location sales are not material to the consolidated financials.
• Mostly company-owned restaurant model. Unlike a pure franchisor, Darden operates 2,202 of its 2,373 restaurants, which requires intensive capital rather than low-capital royalties.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)7.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 115% of ROIC
• ✓Value creation (ROIC − 10% bar)+20pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.3x
• ✓Float / working capitalFrees up cash $0 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Total debt versus equity. Total debt of US$2,331 million is comparable to equity of US$2,208 million, moderate leverage for a business with stable cash flow.
• Limited available cash. Cash and equivalents of US$220 million are low relative to total debt, typical of an operator that returns most of its generated cash to shareholders.
• Interest coverage. Net interest expense of US$194 million represents a small fraction of operating income of US$1,583 million, with ample coverage.
• Non-cancelable operating leases. 2,104 of the 2,202 restaurants in the United States operate on leased sites, mostly under non-cancelable contracts, which reduces flexibility if a location closes early.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Leadership. Rick Cardenas, President & CEO, leads operational execution across the brand portfolio with consistent results in fiscal 2026.
• Capital allocation. Relatively balanced split among reinvestment in new units, a growing dividend, and share buybacks, with no signs of a poorly executed acquisition during the year.
• Dividend streak. Dividend per share rose from US$4.84 in fiscal 2023 to US$6.00 in fiscal 2026, with the most recently declared quarter 8.0% above the prior one.
• Communication transparency. The earnings release explicitly reconciles each non-recurring item (Bahama Breeze closures, Chuy's integration, sale of Olive Garden Canada) against reported earnings.

• The full-service restaurant sector trades at a relative discount to digitized fast-food chains, perceived by the market as having greater structural growth.
• Closure and conversion charges for Bahama Breeze and the Chuy's integration introduce non-recurring noise into GAAP reported earnings, which can be read as weakness in the core business.
• The moderate fiscal 2027 sales guidance (just 3.5% at the midpoint) reflects the loss of the boost from the 53rd week of fiscal 2026, a calendar effect that does not repeat the following year but can be read as structural deceleration.

It trades close to intrinsic value, far from the required margin of safety. The market appears anchored on the nominal deceleration in sales guidance without adjusting for the calendar effect of the 53rd week, while the guided earnings per share of US$11.10-11.35 implies genuine margin expansion. The non-GAAP reconciliation clearly separates non-recurring charges from core operations, and return on capital remains well above the 10% bar despite the year's accounting noise.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at ~0%/year (-2% total): the margin of safety protects the downside. The bull (+13%/year, +83% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Commodity and labor cost pressure. Commodity inflation (beef, chicken, seafood) and labor costs that may not pass through to price without affecting guest traffic.
• Non-cancelable long-term leases. Most restaurants operate on long-term leased sites, with obligations that persist even if a location closes.
• Execution of the growth plan. Each link in the process of opening new units (sites, permits, qualified staff) is a disclosed point of failure; poor execution reduces expected profitability.
• Reputational and food safety risk. A food safety incident at any restaurant, whether Darden's own or a competitor's, can damage brand reputation, amplified by the speed of social media.
• Sensitivity to discretionary consumer spending. The casual dining and fine dining business is sensitive to a slowdown in U.S. discretionary consumer spending.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 30% above the 10% bar, but the margin is limited (+10%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 3.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 7% (EBIT/EV) + ROIC 30% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -3% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -5%/yr, bull-scenario ceiling +9%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, cost advantage, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -3%, within what we project (5%) — the story squares with the numbers.