Wedbush Upgrades Denny's On Its 'Reinvigorated Brand'

In a report published Friday, Wedbush analyst Nick Setyan upgraded

from Neutral to Outperform, while raising the price target from $11 to $12, while adding the company to the Wedbush Investment Committee's Best Ideas List. "We believe Denny's is poised to benefit from multiple near-, medium- and long-term SSS growth drivers and margin opportunities, delivering upside to current consensus expectations, and driving continued multiple expansion," Setyan said. Denny's company-owned margins are expected to reach 16.9 percent in 2015 and to 17.9 percent in 2016, marking the highest reported margins it has reported as a public company. The company recorded positive transaction growth in 2014, for the first year since 2011, and 2015 will be the first time of generating transaction growth for two consecutive years since 1995. Setyan expects the company's drive near- and medium-term SSS growth to be driven by remodels, positive menu mix and pricing actions, as well as a customer "poised to benefit most from current economic tailwinds." Moreover, royalty restructuring could be another multi-year tailwind. "Investor concerns around rising egg costs" appear to be "overblown" and there could be another increase in guidance given the "incremental pricing and transaction growth upside," the report stated. The EPS estimates for 2015 and 2016 have been raised from $0.41 to $0.45 and from $0.46 to $0.50, respectively.