Two of my favorite restaurants are Applebee's Neighborhood Grill and Bar and the International House of Pancakes (IHOP). Like most people I like Applebee's for lunch and dinner and IHOP for breakfast and late, late night. Between the two of these restaurants I can find just about everything I like to eat served in relaxing, comfortable surroundings.
Small and medium sized towns especially like Applebee's. As small towns start to grow they're usually initially invaded with fast food restaurants like McDonald's, Burger King and Taco Bell.
A town's first experience with "upscale" casual dining usually occurs when Applebee's Neighborhood Grill and Bar arrives because it usually the first casual dining restaurant to arrive. In most of those small towns that bond that develops between the Applebee's restaurant and the local population is a pretty strong bond that often lasts for years, despite other casual dining restaurants eventually moving into town.
IHOP has cornered the market for breakfast casual dining. It's closest competitor is the Waffle House and the experience is totally different and less satisfying. Fortunately the two brands that make up DineEquity are complementary and together they target the entire casual dining population.
A town's first experience with "upscale" casual dining usually occurs when Applebee's Neighborhood Grill and Bar arrives because it usually the first casual dining restaurant to arrive. In most of those small towns that bond that develops between the Applebee's restaurant and the local population is a pretty strong bond that often lasts for years, despite other casual dining restaurants eventually moving into town.
IHOP has cornered the market for breakfast casual dining. It's closest competitor is the Waffle House and the experience is totally different and less satisfying. Fortunately the two brands that make up DineEquity are complementary and together they target the entire casual dining population.
| DineEquity, Inc. (DIN), together with its subsidiaries, owns, franchises, and operates full-service restaurant chains in the United States and internationally. It owns and operates two restaurant concepts: Applebee's Neighborhood Grill and Bar in the bar and grill segment of the casual dining category and the International House of Pancakes (IHOP) in the family dining category of the restaurant industry. The Applebee's Neighborhood Grill and Bars offer food, non-alcoholic and alcoholic beverage items and table service. The IHOP restaurants provide full table service, and food and beverage offerings. As of March 17, 2014, DinEquity operated 3,600 restaurants in 19 countries under the company's brands. The company was formerly known as IHOP Corp. and changed its name to DineEquity, Inc. in June 2008 with the acquisition of Applebee's. DineEquity, Inc. was founded in 1958 and is headquartered in Glendale, California. (Daily Chart) (Weekly Chart) | 27 August 2014 Price $83.40 1yr Target $93.50 Analysts 6 1yr Cap Gain 12.11% Dividend $3.00 Yield 3.60% 1yr Tot Return 15.71% Market Cap $1.66 Bil Payout Ratio 77.92% Beta 2.07 EPS (ttm) $3.85 EPS next yr $5.47 P/E 21.66 PEG 1.97 Debt/Equity 4.32 ROA 3.90% ROE 29.10% |
 Applebee’s® competes in the grill & bar segment of the casual dining category of the restaurant industry. In October 2012, the company completed its refranchising initiative successfully transitioning to a system that's 99% franchised. Applebee’s Neighborhood Grill & Bar restaurants are known for their fun and family-friendly neighborhood atmosphere and signature grill & bar menu items. (website) |  IHOP competes in the family dining area of the restaurant industry. Today 99% of all IHOP restaurants franchised. For 50 years, IHOP family restaurants have served their world famous pancakes and a wide variety of breakfast, lunch and dinner items that are loved by people of all ages. IHOP offers its guests an affordable, everyday dining experience with warm and friendly service. (website) |
The Fundamentals
In order to understand the fundamentals of this company an investor needs to understand the company's history. In its simplest form, the data below covers the basic fundamental information for a ten year period and two estimated out years. And at first glance it's almost impossible to understand. But what you're seeing is the fundamental results of a company in transition.
Prior to 2007, DineEquity was composed of only the IHOP chain of company owned and franchised IHOP restaurants. During that period revenues and earnings were erratic but generally moving upward (see below). In 2007 DineEquity acquired the Applebee's Neighborhood Grill and Bar chain of restaurants and saw their revenues soar and their earnings decline. In 2007 the company also made the decision to transition from a combined company owned and franchised organization to a primarily franchised organization.
The transition continued for the next five years and in October 2012 DineEquity announced that 99% of their restaurants, both IHOP and Applebee's, had completed the transition and were franchised restaurants. The year 2013 became the first year of this "new" company.
Depending upon an investor's faith in the brokerage house's analyst's opinions, it appears that going forward DineEquity is about to show some excellent increases in revenues and earnings. If the dividend paid and the payout ratio experienced in 2013 is any indication of future dividends, an investor in this company is likely to be greatly rewarded in the very near future.
Prior to 2007, DineEquity was composed of only the IHOP chain of company owned and franchised IHOP restaurants. During that period revenues and earnings were erratic but generally moving upward (see below). In 2007 DineEquity acquired the Applebee's Neighborhood Grill and Bar chain of restaurants and saw their revenues soar and their earnings decline. In 2007 the company also made the decision to transition from a combined company owned and franchised organization to a primarily franchised organization.
The transition continued for the next five years and in October 2012 DineEquity announced that 99% of their restaurants, both IHOP and Applebee's, had completed the transition and were franchised restaurants. The year 2013 became the first year of this "new" company.
Depending upon an investor's faith in the brokerage house's analyst's opinions, it appears that going forward DineEquity is about to show some excellent increases in revenues and earnings. If the dividend paid and the payout ratio experienced in 2013 is any indication of future dividends, an investor in this company is likely to be greatly rewarded in the very near future.
| Year (Dec) 2015 Est 2014 Est 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 | Revenues $660.73 Mil $643.38 Mil $640.46 Mil $849.92 Mil $1.07 Bil $1.33 Bil $1.41 Bil $1.61 Bil $484.55 Mil $349.56 Mil $348.02 Mil $359.00 Mil $404.80 Mil | Earnings $5.47 $4.59 $3.70 $6.63 $3.89 -$1.74 $0.55 -$10.09 -$0.13 $2.43 $2.24 $1.61 $1.70 | Dividends $ $ $3.00 N/A N/A N/A N/A $0.75 N/A N/A N/A N/A N/A | Payout Ratio % % 81.08% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A |
| Revenue Growth Rate 3 year = -21.43% 5 year = -16.84% 10 year = 4.69% | Earnings Growth Rate 3 year = N/A 5 year = N/A 10 year = 8.08% | Dividend Growth Rate 3 year = N/A 5 year = N/A 10 year = N/A |
The Technicals
The technicals are inconclusive. The stock has simply been bouncing off its Bollinger Bands while drifting sideways. It's appears to be relatively more erratic than the average company because of its relatively high beta (2.07). This shouldn't confuse the average investor but the new investors may see something that isn't there.
 Daily Chart |  Weekly Chart |
The Competition
DineEquity, Inc is part of the Restaurant Industry which is part of the Services Sector of the economy. Below are a few of the major corporations included in this industry. They each pay at least a minimal dividend and they are listed in the order of their market capitalization.
- McDonald's Corporation (MCD)
- Yum Brands, Inc. (YUM)
- Burger King Worldwide, Inc (BKW)
- Darden Restaurants, Inc. (DRI)
- Dunkin' Brands Group, Inc. (DNKN)
- Domino's Pizza, Inc. (DPZ)
- Brinker International, Inc. (EAT)
- The Wendy's Company (WEN)
- Cracker Barrel Old Country Store, Inc. (CBRL)
- Jack in the Box, Inc. (JACK)
- The Cheesecake Factory, Inc. (CAKE)
- Texas Roadhouse, Inc. (TXRH)
- DineEquity, Inc.
- Sonic Corporation (SONC)
- Bob Evans Farms, Inc. (BOBE)
Conclusion
A normal analyst would look at this data and conclude that there just isn't enough there to justify accumulating stock in this company. And logically I would agree. But I like Applebee's and IHOP and every time I'm there it's packed with customers (at all hours of the day or night!). I also like their food and their atmosphere. And I'm impressed how each Applebee's connects with the local schools and sporting activities when furnishing their restaurants.
Looking at the fundamentals I think their transition is working and if estimates are correct (a big if), there could be a really good future here for this stock. Finally I expect the economy to improve going forward so I see the customer base for casual dining expanding.
Obviously if an investor is looking for a company with more concrete fundamentals and a better technical chart, he should look closely at Brinker International, but I think DineEquity could very quickly become very similar to Brinker.
I would love to buy this stock at a P/E ratio of 20 or less which would put the stock at approximately $77.00 but the current dividend yield of 3.60 may keep this from happening. On the other hand, a beta of 2.07 may be just high enough to cause such a pullback to occur. It's the kind of volatility that makes investing so exciting. My intent is to put a buy order in for $80.00 per share and then add to the position on pullbacks below that amount. Wish me luck.
Looking at the fundamentals I think their transition is working and if estimates are correct (a big if), there could be a really good future here for this stock. Finally I expect the economy to improve going forward so I see the customer base for casual dining expanding.
Obviously if an investor is looking for a company with more concrete fundamentals and a better technical chart, he should look closely at Brinker International, but I think DineEquity could very quickly become very similar to Brinker.
I would love to buy this stock at a P/E ratio of 20 or less which would put the stock at approximately $77.00 but the current dividend yield of 3.60 may keep this from happening. On the other hand, a beta of 2.07 may be just high enough to cause such a pullback to occur. It's the kind of volatility that makes investing so exciting. My intent is to put a buy order in for $80.00 per share and then add to the position on pullbacks below that amount. Wish me luck.
The Live Interactive Chart
Additional Articles of Interest
"The Restaurant Industry", published 24 July 2014
"Cracker Barrel Old Country Store", published 13 August 2014
"McDonald's Corp", published 16 August 2014
"Brinker International", published 25 August 2014
"The Restaurant Industry", published 24 July 2014
"Cracker Barrel Old Country Store", published 13 August 2014
"McDonald's Corp", published 16 August 2014
"Brinker International", published 25 August 2014
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