DineEquity, Inc. (DIN) has been blasting higher for the last few months, recently hitting a new multi-year high as retail sales and consumer sentiment show signs of improvement. The company has strong earnings momentum going into its May 5, Q1 results, with an average earnings surprise of 159% over the last four quarters.
Company Description
DineEquity Inc develops, franchises and operates Applebee’s and IHOP restaurants in the United States and internationally. At the end of 2009 the company franchised 1,609 Applebees and ran another 399. It franchises 1,279 IHOPS, licenses another 164 and owns and runs 13. Dineequity was founded in 1976 and has a market cap of $822 million.
With the economy showing more signs of stability, consumer oriented stocks have fallen back into favor with investors. That dynamic has showed up in DIN, with shares more than doubling in price since bottoming out just above $21 in mid January. The company’s better than expected Q4 results from early March also gave shares a nice boost on strong earnings growth and solid margin expansion.
Fourth-Quarter Results
Revenue for the period was mostly flat from last year at $355 million, but earnings came in much better than expected at 76 cents, 300% ahead of the Zacks Consensus Estimate. The company boasts an average earnings surprise of 159% over the last year.
With revenue holding steady from last year, DineEquity drove its quarter with an emphasis on controlling expenses and cutting costs. Its company managed Applebee’s stores saw its operating margin improve 270 basis points to 14.4% of revenue on small price increases and improved labor costs. The company is also paying down its debt, reducing its securitized debt by $74 million during the quarter and $217 million in 2009.
Estimates
We haven’t seen much movement in estimates since the last round of revisions off the good quarter, when the current year added 72 cents to $2.71. The next-year estimate added $1.13 in the same time to $3.17, a solid 17% growth projection.
In spite of the recent gains, shares of DIN don’t look too pricey, trading with a forward P/E multiple of 17X, only a slight premium to the overall market and its industry peers.
2-Year Chart
Shares of DIN began surging early in the year, having since hit a new 2-year high at $48.38. Even though shares have come a long way in just the last few months, the solid valuation and bullish next-year growth projection suggest more upside. With some strong upward momentum, a solid Q1 earnings surprise on May 4 could lift shares to a new high. Take a look below.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service. Zacks Investment Research
