Denny's Stock Breaks Down After Equity Offering

Denny's Corporation (DENN) shares fell more than 7% during Wednesday's session after the company priced an offering of 8 million common shares at $9.15 per share with an underwriter over-allotment option of an additional 1.2 million shares. The transaction is expected to close on July 6, 2020, raising between $69.6 million and $80.1 million for general corporate purposes.

In mid-June, the company announced a sequential improvement in same-store sales during the second quarter as restaurants began to reopen. The stock gave up ground a week later amid the sharp increase in COVID-19 infections and hospitalizations in Texas, Florida, North Carolina, Tennessee, and Arizona. Some states have reintroduced dine-in restrictions in the wake of these increases.

Restaurant chains where customers prefer to dine-in, such as Denny's, Dave & Buster's Entertainment, Inc. (PLAY), and The Cheesecake Factory Incorporated (CAKE), have struggled with the COVID-19 pandemic. Traders should watch for ongoing uncertainty in these stocks over the coming sessions as COVID-19 developments continue to rock the market.

From a technical standpoint, Denny's stock broke down from trendline support levels in a potential move toward reaction lows of around $8.00. The relative strength index (RSI) moved marginally lower to 39.22, but the moving average convergence divergence (MACD) extended its bearish downtrend. These indicators suggest room for further downside ahead.

Traders should watch for a breakdown to reaction lows of around $8.00 over the coming sessions. If the stock breaks down from those levels, prices could retest reaction lows of around $6.50 or 52-week lows of around $5.00. If the stock rebounds higher, traders should watch for a breakout from the 50-day moving average at $10.70 toward prior highs of around $15.00.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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