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Zacks Investment Research upgraded DineEquity Inc (DIN - Snapshot Report) to a Zacks Rank #1 (Strong Buy) on Dec 28. The strong upward movement in estimates following the release of third quarter 2013, driven by upside in IHOP restaurant sales, led to the upgrade.

Why the Upgrade?

Estimates have been rising ever since DineEquity reported better-than-expected earnings and revenues in the third quarter of 2013 (results reported on Oct 29). DineEquity, through its subsidiaries and franchises operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP Restaurant brands.

In the third quarter, adjusted earnings of $1.10 per share grew 6.7% on a year-over-year basis. The upswing was the result of lower cash interest expense and a decline in general and administrative expenses. Though total sales declined 25.4% in the third quarter, it exceeded the Zacks Consensus Estimate by 2.3%.

This Zacks Rank #3 (Hold) company has witnessed sharp upward estimate revisions after announcing its third-quarter 2013 results. All the estimates for 2013 and 2014 increased over the past 60 days. The Zacks Consensus Estimate for 2013 increased 5.8% while that for 2014 went up 3.2% over the same time frame.

The company posted 3.6% growth in IHOP’s domestic system-wide same restaurant sales in the third quarter of 2013. IHOP restaurants, which deliver an American-style dining experience, provide an extensive array of items ranging from signature pancakes to a wide variety of omelettes, French toast and waffles, crepes, sandwiches and burgers, appetizers, soups, salads and desserts.

The strong result in the third quarter reflected a higher average guest check, largely due to a favorable shift in product mix. For 2013, the company has increased its IHOP domestic system-wide same-restaurant sales guidance to the range of positive 2.0%- 3.0 from negative 1.5% and positive 1.5%.

Most recently, DineEquity has announced the opening of its first IHOP restaurant in Jeddah, Saudi Arabia on Dec 14. The company has tied up with franchise operator M.H. Alshaya Co. to open this restaurant Other IHOP restaurants opened under the agreement were in Kuwait and the United Arab Emirates. Other IHOP restaurants opened with Alshaya were in Kuwait and the United Arab Emirates.

Moreover, DineEquity has aggressive expansion plans for the future. With the help of Alshaya, DineEquity intends to develop 40 restaurants across the Middle East and North Africa, with plans to expand to Lebanon, Qatar, Oman, Bahrain and Egypt. The company expects to expand IHOP restaurants globally. Through Alshaya, the company has been able to establish its presence in the key regions, and expand in new locations.

Other Stocks to Consider

Other better-ranked restaurateurs include Brinker International, Inc. (EAT - Analyst Report), Fiesta Restaurant Group, Inc. (FRGI - Snapshot Report) and The Cheesecake Factory Incorporated (CAKE - Analyst Report). While Brinker and Fiesta Restaurant sport a Zacks Rank #1 (Strong Buy), Cheesecake carries a Zacks Rank #2 (Buy).

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