Analyst: 3 Reasons The Operator Of Applebee's And IHOP Is Now A Buy

The upside case for Dine Brands Global Inc DIN, the parent company of Applebee's and IHOP restaurant concepts, can now be made after the company hosted its analyst day presentation, according to Raymond James.

The Analyst

Raymond James' Brian Vaccaro upgraded Dine Brands' stock from Market Perform to Outperform with a newly established $85 price target.

The Thesis

Dine Equity hosted its analyst day last week and among Vaccaro's takeaways were:

• Applebee's "sharp" sales turnaround since October is due to various value promotions including $1 alcoholic drinks. The company is looking to re-establish its brand among consumers by offering "disruptive value offers";
• The company's new CEO Steve Joyce brings to the table the necessary experience in operating multiple brands with a highly franchised business model'
• Prior concerns surrounding Applebee's royalty collection issues and store closures could be resolved this year. Royalty and ad fund collections are expected to normalize and the company is looking at ways to improve average franchisee store margins by 200 to 300 basis points; and
• IHOP contributes more than 50 percent of Dine Equity's total EBITDA and boasts low food costs and a significant growth opportunity ahead.

The analyst also detailed three reasons to now be buyers of the stock, including expectations for comps to outperform over the next few quarters, expectations for an EPS improvement in 2019 from $5 to $7, and investors should re-rate the stock's multiple higher from its "depressed levels."

Price Action

Shares of Dine Brands were trading higher by more than 8 percent Monday and hit a new 52-week high of $74.94.

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Image credit: Anthony92931 (Own work) [CC BY-SA 3.0], via Wikimedia Commons