Ahead of the Bell: Denny's downgraded

A Merriman Curhan Ford analyst downgraded shares of restaurant operator Denny's Corp. Friday, saying Denny's will be paying higher wages as corn prices rise, while its customers cut their spending.

Analyst Eric Wold lowered his rating to "Neutral" from "Buy." He said Denny's could face sharp increases in commodity costs because its supply contracts for corn and other goods will run out at the end of 2008. The higher federal minimum wage will also increase the company's expenses, but high gas prices could force its customers to stay home more often.

Wold trimmed his pretax profit estimates for Denny's in 2008 and 2009. He added that the weak credit market could delay the company's shift toward franchising its restaurants.

On July 24, the federal minimum wage will increase by 70 cents, to $6.55 per hour, and it will rise another 70 cents in 2009, bringing it to $7.25. Last July, the minimum wage was increased to $5.85 from $5.15. All three increases are part of a law signed in 2007.

The analyst upgraded Denny's shares to "Buy" on April 30, but said he reconsidered due to the greater economic challenges the company is facing.

Shares of the Spartanburg, S.C., company finished at $3.66 Thursday. The stock closed at $3.15 April 30, and has traded between $2.50 and $4.99 over the last year.