Monday Morning Breakfast

For me, the official end of the holiday season is over tonight.  It is not some religious feast or significant date, but the end of college football, for me a college football junkie, which marks the end of this festive season annually.  Go Irish!

The stock pick for today is “Buffettesque”, in that everyone is familiar with this company, and almost everyone has dined there.  I was there this past Saturday morning. Of course this is not the first time this stock has graced these pages.

Denny’s Restaurants (NASDAQ – DENN - $5.08) is a breakfast staple across the country.  The stock hit a minor bump after a 52-week high of $5.24 in September with the PR fiasco related to comments made by CEO, John Miller, related to Obamacare, and has been on a nice momentum ride back up since.  The chart looks very bullish short and long term, and is still really cheap in the space with a FY12E P/E under 5.  DENN has had almost a 30% EPS annual growth rate over the last 5 years and analysts expect this trend to continue.

Street consensus calls for a 21% rise in EPS in 2013 despite a slight drop in revenue.

The Company has an aggressive marketing strategy, and has made a concerted effort to target younger restaurant customers with campaigns like The Hobbit film menu items, and the introduction of a smart phone app with associated contests and events.  There has also been exceptional overseas growth in Latin America and New Zealand.

DENN has beaten expectations for two consecutive quarters and we would expect the same to occur for 4Q12.  With a 52-week high of $5.24, we forecast a pop in the stock on its way to the $6.00 range this quarter.

Aaron Schweitzer

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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