IHOP: Turnaround for Tasty Returns

04/26/2017 2:50 am EST

Focus: INCOME

George Putnam

Editor, The Turnaround Letter

Dine Equity (DIN) is restaurant turnaround stock. It has a well-known franchise, a reasonable balance sheet and attractive valuations, notes George Putnam, editor of The Turnaround Letter.

Owner of the iconic IHOP (International House of Pancakes) and Applebee’s chains, Dine Equity, with over 3,700 locations, is one of the world’s largest full-service restaurant companies.  

The shares are down over 50% from their highs and are trading at the same price as they were ten years ago. The company faces a number of headwinds, including  unappealing menus, high prices and poor in-store execution, along with franchisee issues and high turnover in the senior management ranks.  

While daunting, these issues are fixable. Because  the company is nearly 100% franchised, its capital spending requirements are low, but it needs to redirect funds from dividends and share repurchases back to franchisees to help upgrade its offerings.  

With investors legitimately worried about the operating problems, the company is ripe for real change, either internally or externally driven. 

It might not take that much for a new management team to revive the brand and bring investors back to the table. With some patience, this stock might serve up some tasty returns for investors.

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