Denny's Corporation (DENN) shares moved sharply higher over the past two sessions after Maxim Group upgraded the stock on Wednesday to a Buy rating with a price target of $26.00 per share – representing a roughly 24% premium to Thursday's closing price.
Analyst Stephen Anderson raised 2020 earnings per share (EPS) estimates to 97 cents due to refranchising-related savings, "refi-fueled" buybacks, and increasing late-day sales. He believes that these factors will lift the company's earnings growth rate to the low teens after 2021. Prior to his upgrade, the analyst had a Hold rating and $23.00 price target on the stock, which was still a premium to the current price.
The move comes shortly after the restaurant chain expanded its share buyback program earlier this week. The company's new multi-year share repurchase program authorizes the purchase of an additional $250 million of common stock. Common stock may be purchased from time to time in the open market or in privately negotiated transactions.
From a technical standpoint, Denny's stock extended Wednesday's rally and broke out from its 50-day moving average during Thursday's session. The relative strength index (RSI) moved toward overbought levels with a reading of 65.12, but the moving average convergence divergence (MACD) accelerated its upswing toward the zero line. These indicators suggest that the stock could experience some near-term consolidation before resuming an uptrend that has already lasted eight sessions.
Traders should watch for some consolidation above the 50-day moving average before the stock resumes the uptrend toward trendline resistance at $22.00 over the coming sessions. If the stock breaks down, traders should look for a move toward the 200-day moving average at $20.24 or a retest of lows of around $18.50, although that scenario appears less likely to occur given the fundamental and technical strength in the stock.
The author holds no position in the stock(s) mentioned except through passively managed index funds.