Olive Garden not ‘broken;’ Darden a buy: KeyBanc

Betting on a sales turnaround at Olive Garden, KeyBanc analysts upgraded shares of its parent company Darden Restaurants to a "buy" and raised their price target to $62 Tuesday.

The target represents an 11 percent premium to Darden stock's intraday price Tuesday. Shares rose about 2.5 percent following the report. (Click here to track the latest price for Darden stock.)

An Olive Garden restaurant in New York.
Scott Mlyn | CNBC
An Olive Garden restaurant in New York.

Analysts say the country's biggest full service Italian restaurant chain will likely reverse its same-restaurant sales decline over the next 12 months, as its menu changes and online ordering program boost results.

During the first quarter, U.S. same-restaurant sales dropped 1.3 percent at the chain. This decline accelerated to 2.6 percent for the five-week period ended September 28.

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"We do not believe a national restaurant chain that serves 5,000 guests (per) store (a) week is 'broken,' but was poorly managed by the previous CEO and COO," they write.

Olive Garden, like many other casual dining chains, has suffered from a drop-off in traffic and same-restaurant sales. It's drawn the attention of activist investor Starboard Value, which won all 12 board seats in October.

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KeyBanc expects the company's new board to deliver a new plan for unlocking shareholder value and turning the company around that is more realistic than the company's prior one.

They also predict the new board will improve free cash flow in the next two years through more capital expenditure and return on invested capital scrutiny.