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What: IHOP operator DineEquity
So what: IHOP sales are looking to come in at the low end of forecast numbers -- suggesting a 2% decline in same-store sales this year (versus Applebee's results that are trending toward 4% growth). Weak results at IHOP contributed to DineEquity as a whole as revenues slipped in Q2 and profits fell $0.02 short of Wall Street estimates.
Now what: Unprofitable, debt-laden, and now the recipient of an earnings miss, DineEquity shares aren't likely to appeal to stock shoppers any time soon -- but maybe they should. Look behind the kitchen doors, and you may be surprised to see how much cash this business is cooking up.
Free cash flow for the past 12 months approached $175 million, much better than the net loss shown on DineEquity's income statement. At its current $825 million market cap, these shares are priced at less than 5 times annual free cash flow -- not bad for a company that most analysts still expect to grow at 11% per year going forward. If management continues to make progress paying down its debt, DineEquity shares could turn out to be quite tasty.
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