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Analyst boosts price target for Denny's

NEW YORK (AP) -- Denny's may be able to narrow the gap between its stock price and that of its rivals, an analyst said Thursday, as the restaurant operator works on regaining the business it has lost since 2006.

Late Wednesday Denny's Corp. reported fourth-quarter earnings of 7 cents per share on revenue of $115.9 million.

Analysts polled by FactSet expected earnings of 7 cents per share on lower revenue of $112.1 million.

Revenue from systemwide restaurants open at least a year climbed 1.7 percent. This metric is a key indicator of a restaurant operator's health because it excludes results from locations recently opened or closed.

Nick Setyan of Wedbush said in a client note that he believes remodeling restaurants is Denny's first step to realizing sustained growth in revenue from systemwide restaurants open at least a year. The analyst said the chain is expected to remodel 20 to 25 locations in 2013 after taking a two-year break from such actions.

Traditionally Denny's has seen a 5 percent increase in sales after remodels, but Setyan said that the company may see a larger rise in sales considering it took remodeling hiatus.

Denny's was hurt when the housing bubble burst in 2006 and the recession followed. Consumers began to tighten their spending, and for some this meant no longer eating out or eating out less frequently. With signs that a housing recovery is gaining momentum, Denny's is looking to recapture customers it lost.

"We continue to believe that given Denny's customer demographics, it is among the best-positioned restaurants to benefit from any pickup in construction and real estate related activities," Setyan wrote.

The analyst reiterated an "Outperform" rating and lifted Denny's price target to $6.50 from $6.

The company's stock shed 7 cents to $5.55 in afternoon trading after rising as high as $5.73 earlier. That was its highest level since June 2005, according to FactSet.