Denny’s Corp (NASDAQ:DENN) shares hit the 52-week high of $16 a share yesterday, amid investors increasing confidence in its future fundamentals and cash generation potential. DENN stock rose 18% since the start of this year, up 29% in the last twelve months. Denny’s Corp operates or franchises over 1,500 restaurants in the United States and more than 100 restaurants internationally.
Denny’s is top-rated stock among analysts due to its aggressive share buyback program. Share buyback indicates that the company feels its shares are undervalued. Also, share repurchases support earnings per share and share price on stock markets.
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Cash Generation Aids Share Buybacks for Denny’s Corp
Denny’s Corp repurchased $89 million of outstanding stock in fiscal 2017, and it has almost $196 million remaining in authorized share repurchases under its existing share repurchase authorization.
The company appears in stable position to support its share buyback program. It generated almost $78 million in operating cash flows last year, and its free cash flows were standing around $59 million. The company expects its cash generation potential to boost in the day to come, supported by steady growth in its earnings.
The CEO said, “Our highly franchised business model, coupled with our efforts to further differentiate Denny’s as a relevant and compelling brand, continues to generate revenue growth and strong cash flows.”
Outlook is Stable
The company expects to generate mid-single digit growth in revenue and high mid-single-digit growth in earnings in FY2018. Denney hopes its free cash flow to stand around $50 million this year, which is sufficient to support its share buyback program.
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Denny’s Corp stock has the median price target of $17, which is slightly higher from its current price of $16. The sharp rally in DENN stock over the last twelve months has increased its valuations from the industry average. DENN stock currently trades around 28 times to earnings, higher from the industry average of 21 times to earnings.
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