Cheap gas boosts Denny's, IHOP, Papa John's: report

Chain restaurants say December was their highest-sales month in 2014 -- and maybe since the recession --  thanks to cheap gasoline that made eating out a bit more affordable in the Christmas shopping season, plus mild weather in the Midwest and much of the country, writes analyst Mark Kalinowski, in a report this morning to clients of Janney Capital Markets.

For U.S.-focused restaurants, the last three months of 2014 "appears to have been the best quarter for family-dining same-store sales in many years," especially in December, according to Kalinowski. Denny's and the DineEquity chain which runs IHOP pancake houses did especially well. So did Noodles & Co. and Bob Evans Farms.

But Kalinowski is pushing Papa John's International as his favorite mid-cap restaurant stock for 2015 -- thanks to cheap cheese (the most expensive ingredient in chain-store pizza) and the company's record of boosting same-store sales. He's also betting on a turnaround at Darden Restaurants, "especially if the cooks start appropriately salting the water before cooking the pasta at flagship chain Olive Garden," which had been the subject of complaints the company was messing with basic crowd-pleaser menu items.

Among multinational restaurant chains, Kalinkowski is most bullish on Yum Brands, operator of Taco Bell, KFC and Pizza Hut -- "despite bad news" from poor sales in China, until recently the company's strongest growth market. Yum has lately separtated some of its China and India operations, and Kalinowski says the stock has traded at a robust $73+/share because investors expect the company may sell or spin off assets at a fat premium.