DineEquity (NYSE:DIN)

fully re-franchised and ready to re-lever.

This pick comes to us courtesy of one of my new favorite special situation / activist investors, Marcato Capital Management. The company's head honcho Mick McGuire, a former employee of Bill Ackmann at Pershing Square, had presented some outstanding ideas lately.

I've been following his moves fairly closely lately, but I haven't been able to determine the reason for why he has established an activist position in DineEquity (DIN). As someone who doesn't just blindly follow the picks of other super investors, but rather wants to know the thesis behind their investments, I haven't picked up any of DIN in CAPS yet.

Courtesy of this week's 13F article in Barron's I know see why he has established a position in DIN. DineEquity is a cheap cash-flow machine now that it has franchised the majority of its company-owned stores. It appears as though Mr. McGuire wants DIN to use the stream of cash that it has coming in to establish a dividend. According to Barron's:

"$96: assuming a 5% dividend yield, the share price DIN would trade at if it paid out a regular dividend of 80% of its $6-per-share free cash flow."

This compares to a stock price today of slightly over $50/share, even after a strong run in the stock.

A cheap stock with a potential catalyst. Marcato Capital Management has made had a number of successful activist investments lately. I like the upside here and am adding it to my CAPS picks.

Deej

an unbelievable run up. i still think this one stinks.

High debt in still weak economy. Not sure if the price will come down but it may still underperform.

The stock is way ahead of itself. At the core of the turnaround plan is re-franchising corporately owned/operated Applebee’s. While the outlook for the credit markets is uncertain, the restaurant franchise finance market has shut down. GE Capital, the primary lender to restaurant franchisees, has all but stopped lending to the industry by increasing interest rates beyond acceptable levels. Other major players, Merrill and BofA, have discontinued lending money to the industry. Due to the loan size and franchisee net worth requirements, the SBA is not an option. There are no lenders with enough industry knowledge to finance the acquisition of stores.

Julia Stewart is the darling of the industry and is probably the reason why people by the stock. She was in charge of operations at Applebee's when the Applebee's brand was growing strong and worked her magic as CEO of IHOP when the IHOP system desperately needed to elevate the consistency of operations (quality service cleanliness).

Applebee's has hit a ceiling as far as the ability to open new units that will generate above average sales and the casual dining segment has way too much capacity. Applebee's franchisees are strong, professional restaurant management companies that will resist any initiatives that do not provide a good return on investment.

IHOP has driven out franchisees with poor operations, raised the bar for the overall system, and strengthened the brands awareness through advertising. The low hanging fruit has been picked and sales/profit growth will happen slowly over multiple years.

I believe management’s hands are tied for the next twelve months or so and won’t be able to engineer the earnings improvement.

Garbage stock and garbage company. Applebee's has been deteriorating for years and will continue to.

Bear Market Rally is over. As unemployment continues to increase, $10 dinners will be harder to justify...

Why does this have a P/E of 28? Whether they survive or not is immaterial... this sector has far too much competition to justify that kind of a price.

Overweight and too pricey, just like how I feel when I leave their restaurants. I believe they'll survive, but not at this price.

The only thing that could have possibly sent this stock climbing like it has is a combination of a short squeeze (which with a float of less than 18 million shares isn't that difficult), people buying beaten down stocks for a trade, and then momentum investors getting involved once they saw the price exploding. There is no fundamental reason for the price rise and its not like casual dining has a tailwind in its favor right now. I'm going to predict that DIN will be back below $10 a share before the end of the year and that within 5 years the company will have changed ownership structure in some shape or form.

What can i say "COME HUNGRY LEAVE HAPPY " & " CARSIDE TOGO "

DIN has one of the most illiquid balance sheet. It is also loss making.

great stock

worst 30days caps

Buying Applebys and incurring so much debt was a disastrous mistake.

Headwinds

debt, debt, debt

very ongterm, probably ok

CEO is a woman: Julia Stewart

With the buy of the Applebee franchise I think it will make a huge difference with all the renovations that are being done.