On Tuesday, Benchmark lowered the stock price target for Denny's (NASDAQ:DENN) Corporation (NASDAQ:DENN) to $10.00 from the previous $15.00 while keeping a Buy rating on the stock. The adjustment followed the company's third-quarter earnings report and Investor Day, which took place on October 22, 2024.
The restaurant chain's financial results fell short of consensus expectations and slightly missed the revenue and same-store sales (SSS) estimates set by Benchmark, though the adjusted EBITDA was in line with forecasts, and adjusted earnings per share (EPS) were better than expected.
The Investor Day event, held in New York, was overshadowed by Denny's announcement that it plans to work with franchisees to expedite the shutdown of 150 lower-performing locations by the end of 2025. This move aims to establish a more stable base of franchisee operations as the company exits the fiscal year 2025.
Despite the lower financial metrics and the significant planned closures, Benchmark remains optimistic about Denny's prospects. The firm's analyst cited the in-line adjusted EBITDA and better-than-anticipated adjusted EPS as reasons for maintaining the Buy rating. However, the reduction in the price target to $10 reflects a revised valuation multiple in light of the recent developments.
The decision to close underperforming units is part of Denny's strategy to strengthen its overall business structure. By the conclusion of fiscal year 2025, the company hopes to have a more solid foundation of franchise locations, which could potentially lead to improved performance and financial stability in the long term.
Investors and market watchers will be keeping an eye on Denny's progress as it implements its restructuring plan and aims for a turnaround in the coming years. The company's efforts to recalibrate its operations and focus on more profitable locations will be a critical factor in its future growth and market position.
In other recent news, Denny's Corporation has seen a series of developments that are noteworthy for investors. Citi upgraded Denny's shares from Neutral to Buy, setting a new price target of $7.50. The upgrade comes in light of several positive developments, including store closures aimed at providing a stronger base for future growth, increased cost discipline, and clear growth strategies for its breakfast and brunch brand, KeKe's.
Truist Securities holds a Buy rating on Denny's shares, projecting a 1.0% rise in the company's third-quarter sales for 2024, slightly above market consensus. The firm's confidence in Denny's is based on its analysis suggesting that the company's year-over-year sales growth has bottomed out and is set to improve.
On the earnings front, Denny's reported Q2 2024 earnings with total operating revenue reaching $115.9 million. The company also revealed plans for the expansion of its virtual brand, Banda Burrito, and the opening of new restaurants, despite anticipating domestic system-wide same-restaurant sales for 2024 to range between -1% and +1% compared to 2023.
In terms of leadership changes, Denny's appointed Christopher D. Bode as the new President and Chief Operating Officer, succeeding Kelli F. Valade who will continue her role as CEO. This change is part of a broader shift in the company's leadership structure. These are among the recent developments in Denny's Corporation that may impact its future performance.
InvestingPro Insights
To provide additional context to Denny's current situation and Benchmark's analysis, let's consider some key financial metrics and insights from InvestingPro. Denny's market capitalization stands at $321.6 million, with a P/E ratio of 18.38. The company's revenue for the last twelve months as of Q3 2024 was $453.01 million, showing a decline of 3.49% compared to the previous period. This aligns with the underwhelming financial results mentioned in the article.
InvestingPro Tips highlight that Denny's management has been aggressively buying back shares, which could be seen as a vote of confidence in the company's future despite current challenges. However, it is noted that the stock price movements are quite volatile, which investors should keep in mind given the recent developments and planned restructuring.
Another relevant InvestingPro Tip indicates that short-term obligations exceed liquid assets, which may add context to the company's decision to close underperforming locations and strengthen its financial position. On a positive note, analysts predict that Denny's will be profitable this year, supporting Benchmark's maintained Buy rating despite the lowered price target.
For readers interested in a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into Denny's financial health and future prospects.
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