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Prudential initiated coverage of the restaurant industry with an outperform rating, saying the strengthening economy should be a catalyst for growth.

Analyst Larry Miller expects pricing and customer traffic to improve as the economy picks up. He started both

McDonald's

(MCD)

and

Wendy's

(WEN)

with buy ratings.

Miller said some restaurants are moving to a mix of fast food and casual dining in order to meet customer demand. As a result, he thinks unit growth rates will accelerate and price-to-earnings multiples will increase. The analyst believes Wendy's is best-positioned in the move to "fast-casual" dining.

The analyst also said spending and the frequency of visits has increased among some demographics. For example, dual-income households, which have been traditionally casual-dining families, are now eating more fast food.

Over the next 12 months, companies will have easier same-store sales comparisons, the analyst said. Also, a new product cycle has started, helped by higher-quality foods, Miller said.

He initiated

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TheStreet Recommends

Yum! Brands

(YUM)

,

Darden Restaurants

(DRI)

and

Outback Steakhouse

(OSI)

with hold ratings.

Shares of Wendy's were climbing $1.15, or 3.9%, to $30.64 recently, while McDonald's shares were up 19 cents, or 0.9%, at $22.49 on the

New York Stock Exchange

.