Darden Restaurants (DRI) revealed its plans to acquire Tex-Mex chain Chuy’s Holdings (CHUY) in an all-cash deal worth $605 million. This move aligns with DRI’s strategy to broaden its portfolio, which includes well-known brands like Olive Garden and LongHorn Steakhouse.
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Darden’s CEO, Rick Cardenas, highlighted Chuy’s impressive performance and growth potential as key reasons for the acquisition. Chuy’s, headquartered in Austin, Texas, generates over $450 million in annual revenue from its nearly 100 restaurants located across 15 states.
Terms of the Deal
As per the agreement, Darden will acquire all outstanding shares of Chuy’s for $37.50 each. The purchase price reflects a significant 40% premium over Chuy’s average stock price over the past two months.
It should be noted that the deal is expected to close by November 2024.
Challenging Business Conditions
The restaurant industry has faced several headwinds in recent years, including the effects of the pandemic and inflation impacting consumer spending. Last month, Darden acknowledged a slowdown in its business due to reduced discretionary spending.
According to the TipRanks Bulls Say, Bears Say tool, analysts who are bearish on Darden believe that slowing traffic at the core Olive Garden brand and intense competition are significant obstacles.
Therefore, the company’s decision to add a well-known Tex-Mex brand to its portfolio is expected to bolster Darden’s position in the restaurant industry.
Is DRI a Good Stock to Buy?
Darden has a Moderate Buy consensus rating on TipRanks, based on 15 Buys, three Holds, and one Sell assigned in the past three months. After a 6.2% decline in its share price over the past six months, the analysts’ average price target on DRI stock of $170.94 per share implies a 16.01% upside potential.
