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DineEquity (DIN) Q4 Earnings: Stock Likely to Disappoint?

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CA-based restaurant operator DineEquity, Inc. (DIN - Free Report) is scheduled to report fourth-quarter and full-year 2016 numbers on Mar 1, before the market opens.

Last quarter, the company posted a positive earnings surprise of 5.04%. In fact, the company’s earnings have met/surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 4.44%.

DineEquity, Inc Price and EPS Surprise

Let’s see how things are shaping up for this announcement.

Factors at Play

Comps at the International House of Pancakes (IHOP) brand have been positive for 13 consecutive quarters, apart from the last reported quarter when it was flat. The company’s focus on brand innovation as well as its menu improvement strategy and breakfast inspired food offered throughout the day is expected to keep the positive comps trend alive in the to-be-reported quarter.

However, DineEquity’s Applebee's Neighborhood Grill & Bar domestic system-wide comps weren’t encouraging in the first three quarters of 2016. Nonetheless, steps taken to revitalize the brand via increased focus on food and menu innovation, guest satisfaction and marketing are expected to somewhat improve comps.

Meanwhile, though the company is looking to build a new prototype in order to reduce costs, an increase in expenses related to sales initiatives and cost of remodeling of units may dent the quarter’s profits. Incremental investments in marketing programs and promotional activity to combat competition are also expected to weigh on margins. Moreover, a choppy sales environment in the overall restaurant space might limit revenue growth.

Earnings Whispers

Our proven model does not conclusively show that DineEquity is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: DineEquity has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.37. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: DineEquity has a Zacks Rank #4 (Sell).

As it is we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the broader Retail-Wholesale sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Staples, Inc. has an Earnings ESP of +4.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy Co., Inc. (BBY - Free Report) has an Earnings ESP of +1.81% and a Zacks Rank #3.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +0.74% and a Zacks Rank #3.

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