Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

A Juicy Restaurant Stock at a Slender Valuation: DineEquity Inc (DIN)

Page 1 of 2

Casual dining restaurants had a hard run during the Great Recession, as consumers frequently opted to eat at home or pursue cheaper options due to decreased purchasing power. Now, as economic recovery has taken hold, this type of dining seems be becoming more profitable again, with increased customer volume driving revenue up. One casual dining stock has remained in the background lately, overshadowed by hot stocks such as Chipotle Mexican Grill, Inc. (NYSE:CMG), but seems to offer good value at an attractive price. This stock is DineEquity Inc (NYSE:DIN).

DineEquity Inc (NYSE:DIN)

Stock at a Glance

DinEquity develops and operates full-service restaurant chains, with two main restaurant concepts: Applebee’s Neighborhood Grill and International House of Pancakes. The stock has a modest market cap of $1.36 billion and only 640 employees, yet punches way above its weight in terms of earnings. Having had a spectacular run over the last twelve months, gaining nearly 50%, the stock isn’t far from its 52-week high. It does not offer a dividend, and is quite volatile with a beta of 2.48.

Earnings and Margins

While earnings growth could have been more impressive over last year, the company beat every quarter since Q3 2011. For Q3 2012 EPS beat by about 10%, but was down a penny compared to same period a year ago. However, EPS is still higher than most of its larger competitors. At $7.20, it is higher than Brinker International, Inc. (NYSE:EAT)’s $2.03 despite their larger market cap, and higher than Darden (NYSE:DRI)’s $3.50. Darden Restaurants, Inc. (NYSE:DRI), who operates franchises such as Red Lobster, Olive Garden, and Bahama Breeze, has been mostly meeting expectations in the last few quarters, but hasn’t been putting up huge growth.

Where DinEquity really shines is the expected 5-year EPS growth rate, which is currently at a massive 55% according to CNBC. Compare this to Brinker’s 11.2% and Darden’s 3%. Chipotle Mexican Grill, Inc. (NYSE:CMG) comes fairly close with its 37.5%, but it is currently trading at a somewhat inflated multiple leading me to be cautious on the stock. Finally, DinEquity has considerably higher margins than the competition, which is rather significant in the restaurant industry, as margins are typically quite low. DinEquity has an operating margin of 25%, trashing Darden’s and Brinker’s 9% and higher than Chipotle’s 17%.

Valuations and Metrics

DinEquity is cheaper than its competitors based on TTM P/E, which currently sits at only 10.28x, compared to Darden’s 13.45x, Brinker’s 16.5x, and Chipotle’s rather intimidating 37x. However, DinEquity’s forward P/E is a lot less attractive at 17.92x, so that’s definitely something to take into account. However, the stock has an absolutely stellar return on equity of 67.6%. It is important to mention that debt is a fairly serious issue. Total debt currently stands at $1.47 billion, which gives the company a huge total debt to equity ratio of 520. Darden’s ratio stands at 157, while Chipotle has virtually no debt and almost half a billion in cash.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!