Denny’s Corporation (DENN) recently raised its stock repurchase program by another 6 million shares, thereby maintaining the trend of returning wealth to its shareholders from time to time, depending on market conditions.
Denny’s currently has approximately 1.6 million of shares remaining under the 6 million share repurchase initiated by the board in April 2011. The company anticipates completing its previous authorization in 2012.
America’s leading full-service family restaurant chain stated that it allocated up to $34.8 million for share repurchases and dividends every year provided there are no compulsory debt repayments. The 34.8 million limit that the company faces will be removed as soon as its total debt ratio falls below 2 times, and a minimum of $20 million remains in its revolver.
Denny’s ended first-quarter 2012 with cash and cash equivalents of $13.5 million and shareholders’ deficit of $2.6 million. Over the last two years, Denny’s has focused on a franchise-driven operating model to enhance its profitability and free cash flow.
Since inception of stock buyback program in the fourth quarter of 2010, Denny’s returned value to shareholders through share repurchases in addition to repaying debt. We appreciate Denny’s efforts to bolster long-term shareholder value. We believe that an increase in the share buyback authorization affirms the company’s optimistic outlook and shows the company’s confidence in its fundamentals.
At the same time, buying back shares will help the company in reducing the share count, thereby increasing earnings per share and return on equity. As of May 18, 2012, the shares of the company were trading at $3.98. The stock had historically traded between $3.10 and $4.55 in the last 12 months. Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price.
Denny’s, which competes with the likes of Kona Grill Inc. (KONA), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
DENNY’S CORP (DENN): Free Stock Analysis Report
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