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) - Get Report

and

Wendy's

(WEN) - Get Report

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

TST Recommends

Yum! Brands

(YUM) - Get Report

,

Darden Restaurants

(DRI) - Get Report

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

.