Flash Note

July 29, 2014

Darden Restaurants Inc.
DRI: CEO/Chairman Clarence Otis Stepping Down; DRI in
Settlement Talks with Starboard
Our Call
We maintain our BUY rating on DRI following yesterday's announcement that
Clarence Otis will be stepping down as Chairman and CEO. We believe this
announcement is not completely unexpected given mounting pressure from
Activist Starboard. In conclusion, we believe this announcement indicates that the
Company is willing to make more substantive change, which we believe is needed
in light of challenges at Olive Garden. At current levels, we believe that the risk/
reward on shares remains favorable.
Clarence Otis, CEO and Chairman of the Board, To Step Down: Yesterday,
DRI released an announcement that CEO and Chairman, Clarence Otis will be
stepping down from his current positions. Mr. Otis will continue to serve as CEO
(Chief Executive Officer) of Darden until the Company appoints a successor
or December 31, 2014, whichever is earlier. He will also remain a director but
will not be nominated for re-election during the Company's annual shareholder
meeting. The Company noted that they will initiate a search for a replacement
and that internal and external candidates will be considered.
DRI to Separate CEO and Chairman Roles: As suggested by Barrington
Capital in early July, the Company is amending its corporate governance policy
to split the roles of CEO and Chairman. In our view, this is a positive decision that
increases the effectiveness of the Company's corporate governance by providing
for a better balance of power within Darden.
Our View on the Announcement: We believe the announcement will not come
as a surprise to many investors as activist investors have recently pushed for
substantial change at Darden. Until now, the activist proposals seem to have had
little effect on management/board decisions, but we believe additional progress
is forthcoming as at least three of Starboard's nominees will be guaranteed seats
on the Company's board. Overall, we believe investors will view the Company's
announcements as a positive development.
Buy
DRI
Price $44.92
Price Target $55.00
Restaurants
Lynne Collier
(214) 702-4045
[email protected]
Wesley Carmichael
(214) 702-4004
[email protected]
Company Data
52-Week Range $43.56 - $54.89
Market Capitalization (M) $5,909.1
Shares Outstanding (M) 132.3
Avg. Daily Vol. (000) 1,592.0
Estimates Q1 2015 2016
EPS 0.53 2.25
For the latest company report:
DRI Company Report
Any Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification,
Investment Banking, Ratings Definitions, and any potential conflicts of interest begin on Page I of the Appendix
Section. Past performance is no guarantee of future results.
800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500
Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC
APPENDIX SECTION
Company Description:
Darden Restaurants, Inc., (NYSE: DRI), the world's largest full-service restaurant company, owns and operates more than 1,500
restaurants. that generate more than $6.0 billion in annual sales. Restaurant brands include - Olive Garden, LongHorn Steakhouse, The
Capital Grille, Bahama Breeze, Seasons 52, Eddie V's and Yard House.
IMPORTANT DISCLOSURES:
Regulation Analyst Certification:
I, Lynne Collier and Wesley Carmichael, hereby certify the views expressed in this research report accurately reflect my personal views
about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly,
related to the specific recommendations or views expressed by me in this report.
Price Target Risks & Related Risk Factors:
Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve Sterne,
Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect demand for a
company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or industry; intense
and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability to recruit and retain
competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of
a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities Exchange Commission.
Company Specific Risks:
Investment risks include: slowing domestic economic growth; pressures on consumer spending and sentiment; increased competition,
particularly in the bar & grill segment of casual dining; and commodity and labor inflation.
Valuation Methodology:
Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry
size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and
expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry
or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings
multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflects
the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors.
Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.
Company Specific Valuation:
Our target price is $55, reflecting at P/E multiple of ~24x our FY15 estimate of $2.25.
Definition of Investment Ratings:
BUY: We expect this stock to outperform the industry over the next 12 months.
NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months.
UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months.
RESTRICTED: Restricted list requirements preclude comment.
Ratings Distribution:
IB Serv./ Past 12Mos.
Rating Category Count Percent Count Percent
Buy 258 49.43% 35 13.57%
Neutral 250 47.89% 26 10.40%
Underperform 14 2.68% 0 0.00%
ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731.
Other Disclosures:
Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon as such. Past performance is no guarantee of future results.
Appendix Section, Page I
J uly 29, 2014
For UK Professional Clients
This research report is disseminated in the UK by Sterne Agee UK LLP which is authorized and regulated by the Financial Conduct
Authority. This research report is intended for distribution in the UK only to, and should be relied upon only by, persons who or may be
classified as eligible counterparties or professional clients pursuant to the FCA's rules or who are investment professionals as defined in
Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
Copyright 2014 Sterne, Agee & Leach, Inc. All Rights Reserved.
To receive price charts or other disclosures on the companies mentioned in this report that are not the subject of this report
which Sterne Agee continues to cover, please visit our website at https://sterneagee.bluematrix.com/sellside/Disclosures.action
or contact Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or (205) 949-3689.
Appendix Section, Page II
J uly 29, 2014


Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the early years, our founders
prominently established themselves in the financial securities industry in the southeastern United States. Today, we have expanded to serve all regions of the country. Sterne,
Agee is headquartered in Birmingham, Alabama. Sterne Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee
Group, Inc., which also includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee
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