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I was at a hedge fund association event last Thursday talking restaurant stocks. I planned to pen a column Friday about two well known chains that have hit hard times but looked dirt cheap and would be possible acquisition targets. As it happens, one of those stocks, Morton's, was bought out before the market open on Friday. (Timing is everything!) The other ran up on the news but still looks like a solid buy, especially if it gives back some of Friday’s gains.

Denny’s Corporation (NASDAQ:DENN) – “Denny's Corporation, through its subsidiaries, engages in the ownership and operation of a chain of family-style restaurants. The company operates traditional American-style food restaurants under the Denny’s brand name. As of November 01, 2011, it operated approximately 1,670 franchised, licensed, and company-owned restaurants in the United States, Canada, Costa Rica, Mexico, Honduras, Guam, Puerto Rico, and New Zealand”. (Business description from Yahoo Finance)

7 reasons why Denny’s is a solid buy at under $4 a share:

  1. Insiders made some significant buys in December
  2. The company has huge brand recognition. I mean who doesn’t have at least one “Denny’s” story?
  3. The market is placing a value of just over 300K for each of the restaurants it owns, manages and franchises…significantly below replacement or acquisition cost.
  4. One of the few firms to follow this company (Feltl & Co.) just upgraded this equity two weeks ago.
  5. The stock looks like it has technical support at $3.20 (See Chart)
  6. Denny’s sells for a forward PE of under 10, 7 times operating cash flow and has a five year projected PEG of under .7.
  7. The consensus price target of the seven analysts who cover the stock is $5, 30% over the current price of the stock.

(Click chart to expand)

6. Denny’s sells for a forward PE of under 10, 7 times operating cash flow and has a five year projected PEG of under .7.

7. The consensus price target of the seven analysts who cover the stock is $5, 30% over the current price of the stock.

Source: Denny's: A 'Grand Slam' For Investors?