Rating Update: Stock Rating Z-unrated (9/17/19)-Dine Brands Global Inc (DIN).

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BUSINESS

Dine Brands Global, Inc., together with its subsidiaries, owns, franchises, operates, and rents full-service restaurants in the United States and internationally. It operates through four segments: Franchise Operations, Rental Operations, Company Restaurant Operations, and Financing Operations. The company owns and franchises two restaurant concepts, including Applebee’s Neighborhood Grill & Bar (Applebee’s) in the bar and grill segment of the casual dining category of the restaurant industry; and International House of Pancakes (IHOP) in the family dining category of the restaurant industry. Its Applebee’s restaurants offer casual food, drinks, casual dining, and table services; and IHOP restaurants provide full table services, and food and beverage offerings.
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INVESTMENT RATING

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With future capital returns forecasted to fall short of the cost of capital, DIN is expected to continue to be a major Value Eraser.

Dine Brands Global is currently unrated.

Dine Brands Global’s targeted value is not available.
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Dine Brands Global has a Power Rating of 46. (This neutral Power Rating indicates that DIN’s chances of enjoying attractive investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: earnings estimate behavior for DIN has been slightly negative recently; and is in a slightly weakened position current. An offsetting factor is recent price action has been neutral.

INVESTMENT PROFILE

DIN’s financial strength is high. Financial strength rating is 73.
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Relative to the S&P 500 Composite, Dine Brands Global Inc has slightly more Growth than Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that DIN is normal risk. Relative weaknesses include: low forecasted profitability, and high financial leverage. DIN’s valuation is low: high dividend yield, low P/E ratio, and moderate price/book ratio. DIN has unusually low market capitalization.

CURRENT SIGNALS

Dine Brands Global’s current operations are eroding. Return on equity is falling, reflecting: and falling tax keep rate.

Dine Brands Global’s current technical position is very weak. The stock price is in a 1.9 month down move. The stock has declined 24.1% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.

ALERTS

Positive development: significant quarterly sales acceleration occurred. Negative development: the stock’s power rating fell below 50.
The stock is currently unrated.
Dine Brands Global Inc (NYSE: DIN) stock closed at $0.51 on 9/17/19 after a major decline of -15.0%. However, this decline was accompanied by unusually low trading volume at 55% of normal. The stock has declined -1.0% during the last week and has performed in line with the market over the last nine months.

CASH FLOW

In 2018, Dine Brands Global generated a very significant increase in cash of +$37.2 million (+25%). Sources of cash were much larger than uses. Cash generated from 2018 EBITDA totalled +$206.4 million. Non-operating uses consumed -$1.9 million (-1% of EBITDA). Cash taxes consumed -$62.6 million (-30% of EBITDA). Withdrawal of investment from the business totalled +$51.7 million (+25% of EBITDA). On a net basis, debt investors withdrew -$20.4 million (-10% of EBITDA) while equity investors pulled out -$135.9 million (-66% of EBITDA).
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Dine Brands Global’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Dine Brands Global Inc Peer Group. In most years, Dine Brands Global was in the top quartile and third quartile. Currently, Dine Brands Global is at the upper quartile at -1% of EBITDA (-$1.9 million).

Dine Brands Global’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Dine Brands Global Inc Peer Group. In most years, Dine Brands Global was in the lower quartile and second quartile. Currently, Dine Brands Global is lower quartile at -30% of EBITDA (-$62.6 million).

Dine Brands Global’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Dine Brands Global Inc Peer Group. In most years, Dine Brands Global was in the top quartile and second quartile. Currently, Dine Brands Global is above median at +25% of EBITDA (+$51.7 million).

Dine Brands Global’s Debt Investors, %EBITDA has experienced a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Dine Brands Global Inc Peer Group. In most years, Dine Brands Global was in the lower quartile and third quartile. Currently, Dine Brands Global is substantially below median at -10% of EBITDA (-$20.4 million).

Dine Brands Global’s Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Dine Brands Global Inc Peer Group. In most years, Dine Brands Global was in the third quartile and lower quartile. Currently, Dine Brands Global is substantially below median at -66% of EBITDA (-$135.9 million).

Dine Brands Global’s Change in Cash, %EBITDA has experienced a strong overall uptrend over the period. This improvement was accompanied by stability for the Dine Brands Global Inc Peer Group. In most years, Dine Brands Global was in the second quartile and lower quartile. Currently, Dine Brands Global is at the upper quartile at +18% of EBITDA (+$37.2 million).
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Dine Brands Global’s Cash, %Revenue has enjoyed a strong overall uptrend over the period. This improvement was accompanied by an opposite trend for the Dine Brands Global Inc Peer Group. In most years, Dine Brands Global was in the third quartile and second quartile. Currently, Dine Brands Global is slightly above median at +24%.

PROFITABILITY

Dine Brands Global’s return on equity has eroded very significantly since 2009 accelerating very sharply after the 2017 level.
Dine Brands Global’s very strong positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors is a significant analytical factor.
The productivity of Dine Brands Global’s assets declined over the full period 2009-2019: asset turnover has experienced a downtrend but it experienced a very sharp recovery after the 2013 low.
More than offsetting this trend, however, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2017 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
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Dine Brands Global’s return on equity is below median (-48.2%) for the four quarters ended June, 2019.
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Operating performance (pretax return on assets) is upper quartile (6.5%) reflecting asset turnover that is at the upper quartile (0.43X) and upper quartile pretax margin (15.3%).
Tax “keep” rate (income tax management) is lower quartile (77.6%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (-9.49X).

GROWTH RATES

Overall, Dine Brands Global’s growth rate has slowed considerably in recent years.
Dine Brands Global’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.

Annual revenue growth has been -5.8% per year. (More recently it has been 5.7%.)

Total asset growth has been -4.5% per year.

Annual E.P.S. growth has been 16.7% per year.

Equity growth has been 37.2% per year. (More recently it has been -5.0%.)

Dine Brands Global’s consensus growth rate forecast (average of Wall Street analysts) is 13.0% — in line with the average of the historical growth measures.
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Relative to the Dine Brands Global Inc Peer Group, Dine Brands Global’s historical growth measures are erratic. Equity growth (37.2%) has been upper quartile. E.P.S. growth (16.7%) has been at the upper quartile. Revenue growth (-5.8%) has been lower quartile. Total asset growth (-4.5%) has been lower quartile.

Consensus growth forecast (13.0%) is at the upper quartile.
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PRICE HISTORY

Over the full time period, Dine Brands Global’s stock price performance has been variable and superior. Between November, 2008 and September, 2019, Dine Brands Global’s stock price rose +482%; relative to the market, this was a +74% gain. Significant price moves during the period: 1) February, 2015 – August, 2017: -63%; 2) September, 2011 – February, 2015: +182%; 3) June, 2010 – February, 2011: +105%; and 4) February, 2009 – April, 2009: +336%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 19.3% is substantially above median relative to the S&P 500 Composite.
In addition to being substantially above median relative to S&P 500 Composite, current annual total return performance through July, 2019 of 19.3% is above median relative to Dine Brands Global Inc Peer Group.

Current 5-year total return performance of 5.0% is substantially below median relative to the S&P 500 Composite.
Through July, 2019, with substantially below median current 5-year total return of 5.0% relative to S&P 500 Composite, Dine Brands Global’s total return performance is above median relative to Dine Brands Global Inc Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, DIN’s overall valuation is normal. The highest factor, the ratio of enterprise value/revenue, is slightly above median. Ratio of enterprise value/assets is slightly below median. Ratio of enterprise value/earnings before interest and taxes is below median. Price/earnings ratio is lower quartile. Price/equity ratio is unavailable.
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Dine Brands Global has a major value gap compared to median valuation. For DIN to fall to lower quartile valuation, its current ratio of enterprise value/revenue would have to decline from the current level of 3.41X to 1.88X. If DIN’s ratio of enterprise value/revenue were to decline to 1.88X, its stock price would be lower by $-78 to $-4.
For DIN to achieve upper quartile valuation relative to the Dine Brands Global Inc Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 3.41X to 10.91X. If DIN’s ratio of enterprise value/revenue were to rise to 10.91X, its stock price would increase by $381 from the current level of $74.

VALUE TARGETS

With future capital returns forecasted to fall short of the cost of capital, DIN is expected to continue to be a major Value Eraser.
Dine Brands Global’s current Price Target is not available.
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Dine Brands Global’s current Price Target is not available.
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PTR’s return on equity forecast is -0.0% — slightly below our recent forecasts. Forecasted return on equity suffered a dramatic, variable decline between 2010 and 2018. The current forecast is significantly below the 2010 peak of 118%.

PTR’s growth forecast is 8.0% — above our recent forecasts. Forecasted growth suffered a dramatic, variable decline between 2010 and 2018. The current forecast is significantly below the 2010 peak of 22%.

PTR’s cost of equity forecast is 9.0% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2010 and 2018. The current forecast is well below the 2010 peak of 16.7%.
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At Dine Brands Global’s current price of $74.14, investors are placing -Na on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 2.0% per year, and a return on equity of 4.0% versus a cost of equity of 5.8%.
PTR’s 2020 Price Target of $-Na is based on these forecasts and reflects an estimated value of existing assets of $-Na .

About John Lafferty 80532 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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