Denny’s: Improving Under New Management

February 24, 2012

A Boston-based PM likes Denny’s (DENN: NASDAQ, $4.19) at this level.  The company has been executing much better under the new CEO.  The new management team, including the new COO and CMO, has over 25 years of industry experience each, a rarity for a small market cap name like Denny’s.  The company has been transitioning to a 90% franchise-owned model and it’s had a postive impact on the cash flow.  Denny’s has been paying down debt, with leverage now at below 3x versus 5-6x just a couple years ago.  There is plenty of room for expansion in both domestic and international markets.  A low franchise start up fee, great brand recognition and craving for “American” food outside the US will help the company’s growth plans.  The stock is undervalued on historical multiples and price to sales, and the company is in a much better shape now financially. The presenter also mentions recent buyouts in the space, a major competitor Friendly’s in bankruptcy, and well-known value investors on the top shareholder list.

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