Digital Platforms And International Deals Will Unlock Future Value

Key Takeaways

• Digital innovation and data analytics are set to enhance efficiency, customer engagement, and overall margin growth across the business.
  
• International expansion and targeted menu innovation aim to boost revenue diversity, customer traffic, and long-term earnings stability.
  
• Shifting consumer preferences, franchisee pressures, inflation, reduced advertising, and fierce competition threaten Wendy's sales, margins, market share, and long-term growth without strategic adaptation.

Catalysts

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

• The company's increased investment in digital platforms-including mobile ordering, AI-driven menu boards, and revamped loyalty programs-positions Wendy's to capture a growing share of digital and off-premise sales. This should reduce labor costs, enhance customer engagement, and support both revenue growth and margin improvement.
  
• Strong ongoing international expansion, including major development agreements in Europe, Latin America, and Asia, is poised to diversify earnings streams and drive long-term systemwide revenue growth, helping offset soft U.S. performance.
  
• Accelerated menu innovation, with a focus on high-growth segments such as chicken, breakfast, and trending beverages (cold brew, energy drinks), targets evolving consumer tastes and presents opportunities for higher average ticket size and same-store sales growth.
  
• Enhanced use of granular, real-time data analytics to optimize marketing, menu, and pricing strategies should drive better targeting, more effective promotions, and higher customer frequency, all of which can lead to improved revenue and net margins system-wide.
  
• Reinforced franchisee partnerships, operational simplification, and investments in staff training are expected to support improved execution, higher customer satisfaction, and ultimately drive increased traffic and expanded unit growth, positively impacting long-term earnings and free cash flow.

Wendy's Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wendy's's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 9.1% in 3 years time.
• Analysts expect earnings to reach $209.9 million (and earnings per share of $1.18) by about August 2028, up from $192.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $237 million in earnings, and the most bearish expecting $175.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, up from 10.3x today. This future PE is lower than the current PE for the US Hospitality industry at 22.8x.
• Analysts expect the number of shares outstanding to decline by 6.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Wendy's Future Earnings Per Share Growth

Risks

• Shifting consumer preferences toward healthier, wellness-focused lifestyles may reduce demand for Wendy's core menu items, risking long-term revenue declines if menu innovation does not keep pace with market trends.
  
• Reliance on a large U.S. franchise network with recent declines in same-restaurant sales and franchisee margin pressure introduces risk of further store underperformance or closures, potentially slowing revenue and eroding royalty income streams.
  
• Persistent inflation in commodity costs (notably beef) and ongoing wage inflation are compressing U.S. restaurant margins, and the company's forecast for 4% commodity inflation signals continued risk to net margins and profit growth.
  
• Advertising spend is projected to decrease in the second half of the year due to lower systemwide sales, which could make it harder to maintain brand visibility and customer traffic against aggressive promotional competition, threatening customer acquisition and revenue growth.
  
• Intensifying competitive pressures and price-focused promotions by QSR peers highlight risk of market share loss and increased price sensitivity among Wendy's lower-income customer base, further pressuring same-store sales, margins, and earnings in a prolonged challenging environment.

Valuation

• The analysts have a consensus price target of $11.905 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 $18.5, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $209.9 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $10.41, the analyst price target of $11.9 is 12.6% 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.