Denny's shares were upgraded to Buy by Investing.com on disciplined spending and promising growth plans

On Friday, Citi upgraded shares of Denny's (NASDAQ:) Corporation from Neutral to Buy and set a new price target of $7.50 (from $7.00). The upgrade came as the analyst highlighted several positive developments for the restaurant chain, including accelerated store closures, which are expected to provide a stronger foundation for future growth. The company's store closure plans aim to ensure at least a consistent number of stores through 2026 and beyond.

The analyst also noted Denny's increased cost discipline and expects a 5-6% reduction in core general and administrative (G&A) expenses in the coming years. This financial tightening is accompanied by technological improvements that are expected to increase profits at the store level. Additionally, the analyst provided insights into the company's clear growth strategy for KeKe's, its breakfast and brunch brand, which includes both comparable sales growth and new store openings.

While the analyst acknowledges the challenges facing the category and the brand, he is confident in the credibility of Denny's initiatives. These initiatives include restaurant remodels, ongoing customer experience and branding improvements, a reevaluation of the value proposition, and a marketing message that resonates better with consumers.

The positive outlook is further supported by Denny's current valuation: shares trade at 6.1 times the company's estimated fiscal 2020 EBITDA and a free cash flow yield of 9%. According to the analyst, the market has not yet fully realized the potential for Denny's, suggesting that the risk-reward ratio is now in investors' favor. The upgrade reflects belief in the company's ability to overcome its challenges and capitalize on its strategic initiatives.

In other recent news, Denny's Corporation has been active in implementing strategic initiatives to increase its brand and profitability. Despite a challenging market environment, the company reported second-quarter 2024 earnings with total operating revenue of $115.9 million. Additionally, Denny's has named Christopher D. Bode as its new president and chief operating officer, succeeding Kelli F. Valade, who will continue in her role as CEO. This change is part of a broader change in the company's leadership structure.

Citi maintained a neutral rating on Denny's shares but revised its price target to $7.00 from $8.00 previously, citing concerns about brand and category challenges. On the other hand, Truist Securities maintains a “Buy” rating on Denny's shares and forecasts Denny's sales to rise 1.0% in the third quarter of 2024, slightly above the market consensus.

Denny's also revealed plans to expand its virtual Banda Burrito brand and open new restaurants. However, the company expects domestic systemwide same-restaurant sales to be between -1% and +1% for 2024 compared to 2023.

Investing Pro Insights

Complementing Citi's upgrade of Denny's Corporation (DENN), recent data from InvestingPro provides additional context on the company's financial landscape. Despite the challenges cited in the analyst report, Denny's maintains a market cap of $321.6 million, reflecting its significant presence in the restaurant industry.

InvestingPro Tips highlights that management has been aggressively buying back shares, which could signal confidence in the company's future prospects and is consistent with Citi's positive outlook. This strategy can also support the stock price as the company implements its restructuring and growth initiatives.

However, it's worth noting that Denny's stock price movements have been quite volatile, according to another InvestingPro tip. This volatility is reflected in the company's year-to-date total return of -42.46%, suggesting that investors have been cautious about the stock's performance in the current year.

The company's P/E ratio (adjusted) for the last twelve months (as of Q3 2024) is 11.87, which is below the current P/E ratio of 18.38. This difference could indicate that the market is pricing in expectations of future earnings growth, which may be consistent with the analyst's positive outlook on Denny's strategic initiatives.

For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights that could help make investment decisions regarding Denny's Corporation.

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