Denny's Corp (NASDAQ:DENN)

Can a random number generator (www.random.org) produce the best 100 stock picks that will beat the market over the years? Let’s find out. :)

My process, for those interested:
I use www.random.org number generator to produce a number between 1 and 7,801. There are 7,801 stocks available to choose on the Motley Fool CAPS Game. Once I get a number, I go to the list, find that stock, and select that stock to outperform for the next five years.

Denny's, the home of the Grand Slam Breakfast is turning into a home run stock for investors. I've been a big fan of the Grand Slam Breakfast, 2 pancakes, 2 eggs, 2 slices of bacon, and 2 sausage links for years. It seems like no matter where you go on vacation, right across the street from your hotel is a Denny's. I love comfort and Denny's is the ultimate in "comfort food".

Here are a few good reasons to consider Denny's (DENN)

1. In the past year the stock has moved from $4 to $5.60. A nice 12 month move of 40%.

2. Denny's earnings have increased by 20% in each of their last 2 quarters.
3. Their Price/Sales ratio is 1.07
4. In the last reported quarter, Denny's beat expectations on revenues and beat expectations on earnings per share.

Two other things worth noting, is that usually when you see an established company like Denny's grow earnings by 20% in 2 consecutive quarters, it means that management is doing something extraordinary (different) and the pipeline they have laid to create that excellence will remain in place for the foreseeable future, which will most likely translate into continued price appreciation. To give you further perspective on this whole thing, McDonald's in the same time period, increased earnings by 10% two quarters ago and in the last quarter, their earnings actually went down 1.5%. So in the last 6 months, McDonald's (MCD) has increased their earnings by approximately 9% while Denny's has increased theirs by 43%. How is that for a comparison?

The second thing, is that recently Denny's delayed expanding into southern China. Some saw this as being a negative for the company. Really? Maybe the opposite is true and that management should be applauded for having the foresight to think twice about doing it now.

Ultimately for me, it comes down to the basics, I know the product, I like the product, the company's earnings are accelerating at a rapid pace (and will probably continue to do so) and it's stock price is under valued when using the price to sales metric.

A top grade from StockScouter and an actual value at least twice it's most recent trade by my formula.

Charts look good too.

growing earnings, smart mgt.

First what I don't like – Free Cash Flow / Operating Cash Flow are not greater than Net Income. I like to see cash flows stronger than NI. It makes me feel more comfortable that there are no shenanigans going on in regards to reported earnings. There are, however, strong owner earnings with this company, and it appears to be well managed in the last couple of years (low flow ratio, high ROIC). The main characteristic of this company that is appealing right now is that it is dirt cheap. Even with very conservative earnings growth estimates (say 3% per year average for next 5 years), we are still below intrinsic value of this stock. Analysts are expecting 19% on average per year. I don't think that's going to happen; however, it does give us starting point for estimation. Let’s see where this goes.

random

All the youngsters love to eat Denny's after they party.

Downward climb until mid-feb/march, then it'll swing up for 30% or so.

Company does appear to be on a turnaround and is paying down debt, and the hyper-patriotic rebranding in their new commercials (America's Diner, etc.) appears to be pretty effective. However, there's one problem: they have almost nowhere to grow, meaning that even at the current pace, paying down debt is going to be a painfully slow process. This stock may see significant gains in years to come if they manage to turn around their negative tangible book value and start making (and keeping) money, but this will be a laggard until then.

Love Denny's for short and longterm, they have done a lot to position themselves for the future.

Baby boomers and college students

Rebound of the American consumer.

This stock is cheap......maybe they can actually get their house in order this time for real.

Dennys value menu is great, and it is starting to become the college town hangout with its late operating hours

The company's franchise initiative combined with their continued efforts at service cheap meals in a down economy will ensure they make it through and grow ahead of the general economy.

I can afford to eat at Denny's..............but I don't.

Denny's has fantatic food at fantastic prices. My only complaint is a deterioration is their sites, but the one by me was remodeled last year. I have high hopes for Denny's.

new menu is attractive and priced to appeal to both freeway and local traffic

proxy fight, and one of the folks involved in both WEST and SNS (Jonathan Dash) is one of the three nominees to the board, and a significant shareholder. This may (and I stress may) be a replay of FRN and SNS.