Analyst Bumps Up Denny's Price Target By 8% Reflecting Top-Line Momentum; Notes Limited Visibility Into Margin Recovery

Wedbush analyst Nick Setyan reiterated a Neutral rating on the shares of Denny's Corp DENN and raised the price target from $12.50 to $13.50.
The analyst said that the company's Q4 adjusted EPS of $0.18 was above $0.17 cons. on pre-announced company SSS growth of 6.0% and franchised SSS growth of 1.7%.
Commodity and labor inflation during the quarter were 13.0% and 5.0%, respectively.
2023 system SSS growth guidance of 3-6% was above 2.6% consensus, with management commentary indicating Q1 could reach double digits, said the analyst.
Given Q1's strength, it's difficult to foresee a scenario in which 2023 SSS growth comes in below the low end of guidance even if a consumer slowdown takes place in 2H:23, remarked the analyst.
In addition to Q1's strength, the analyst views management's emphasis on value, menu pricing, the continued recovery of 24/7 operations across the system, the stability of off-premise sales, and effective LTO's/marketing as drivers of SSS growth in 2023.
Further, the analyst increases the 2023 company-owned SSS growth estimate to 4.9% from 3.0% and the franchised SSS growth estimate to 5.6% from 2.8%.
The analyst added that persistent inflation and G&A investments drive lower AEBITDA guidance despite the top-line momentum.
Management expects FY23 commodity inflation of 4-6%, which has the analyst surprised, given that family dining is well positioned to benefit from the decline in egg costs in 2023.
Management expects 8-12 net Denny's openings in 2023, above the analyst's estimate of a net decline of 13.
Price Action: DENN shares are trading higher by 1.40% at $12.31 on the last check Tuesday.

DENNDenny's Corp

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