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Darden's acquisition of Cheddar's is bad news for smaller restaurants that are looking for a buyout (DRI)

Darden Restaurants, the owner of popular chains such as Olive Garden and Longhorn Steakhouse just made an acquisition that may boost its stock price.

3. Cheddar's Scratch Kitchen

Darden Restaurants, the owner of popular chains such as Olive Garden and Longhorn Steakhouse, announced on Monday that it is buying Texas-based restaurant chain Cheddar's Scratch Kitchen for $780 million.

In a note sent out to clients on Tuesday, a team of Morgan Stanley analysts led by John Glass said that the deal is bad news for small cap restaurants looking for a buyout.

"The acquisition of a privately held brand is probably a modest negative for other small cap public casual diners, as they are now effectively ruled out as DRI targets in the short-term."

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"The Cheddar's buy adds a brand to the portfolio that is differentiated (varied menu, scratch cooking, and value focus) and adds growth (165 units, 28 states, last three year unit growth CARG of ~4%)."

The bank expects the acquisition will contribute about $70-75 million in EBITDA, a measure that gauges a firm's operating performance.

The acquisition also follows a solid 3Q earnings per share that beat on industry-leading comps.

"3Q EPS of $1.32 came in ahead of our $1.29 and consensus at $1.27," Morgan Stanley said,"Driven in part by better than expected blended [same-store sales] of +.9%."

As such, the bank has a price target of $77 per share, above its previous close at $75. 58 per share.

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