60% International Openings And FreshAI Will Transform Operations

Key Takeaways

• International expansion and innovative campaigns aim to boost revenue growth and customer engagement.
  
• Technology adoption and strategic capital allocation enhance productivity, investor confidence, and potential earnings growth.
  
• Adverse weather and challenging consumer confidence are pressuring sales and margins, potentially harming Wendy's revenue and overall earnings growth.

Catalysts

Operates as a quick-service restaurant company in the United States and internationally.

• Wendy's plans to accelerate global net unit growth, with over 60% of new restaurant openings in international markets, potentially boosting future revenue.
  
• Innovations such as Frosty collaborations and the 100 Days of Summer campaign aim to drive customer traffic and increase engagement, impacting revenue and overall earnings.
  
• Technological advancements, including digital menu boards and FreshAI, are expected to enhance productivity and order accuracy, likely improving net margins.
  
• Wendy's focus on operational excellence and customer experience improvements, with added resources and specific training, may enhance customer retention, impacting revenue growth.
  
• A strategic capital allocation plan, including share repurchases and dividends, indicates financial discipline, potentially leading to increased investor confidence and earnings per share (EPS) growth.

Wendy's Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wendy's's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 9.4% in 3 years time.
• Analysts expect earnings to reach $224.7 million (and earnings per share of $1.2) by about May 2028, up from $191.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, up from 12.1x today. This future PE is lower than the current PE for the US Hospitality industry at 21.9x.
• Analysts expect the number of shares outstanding to decline by 6.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Wendy's Future Earnings Per Share Growth

Risks

• Adverse weather and a challenging consumer environment led to a decline in same-restaurant and systemwide sales, which could negatively impact revenue.
  
• The company experienced a reduction in demand due to a deterioration in consumer confidence, affecting systemwide sales growth and potentially harming revenue.
  
• There's pressure on U.S. company-operated restaurant margins due to sales deleveraging, higher commodity costs, and wage rate inflation, threatening net margins.
  
• The challenging macro environment led to a cautious outlook, with expectations of flat to down 2% global systemwide sales, which may impair earnings growth.
  
• Franchisee profitability may be pressured given the current consumer environment, which could affect the overall company's earnings if franchisees struggle to operate effectively.

Valuation

• The analysts have a consensus price target of $14.736 for Wendy's based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.4 billion, earnings will come to $224.7 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $11.87, the analyst price target of $14.74 is 19.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.