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WEN

Wendy's NasdaqGS:WEN Stock Report

Last Price

US$18.69

Market Cap

US$4.0b

7D

-2.0%

1Y

-16.2%

Updated

02 Oct, 2022

Data

Company Financials +
WEN fundamental analysis
Snowflake Score
Valuation5/6
Future Growth2/6
Past Performance1/6
Financial Health1/6
Dividends4/6

WEN Stock Overview

The Wendy's Company, together with its subsidiaries, operates as a quick-service restaurant company.

The Wendy's Company Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Wendy's
Historical stock prices
Current Share PriceUS$18.69
52 Week HighUS$24.48
52 Week LowUS$15.77
Beta0.92
1 Month Change-3.26%
3 Month Change-3.46%
1 Year Change-16.19%
3 Year Change-9.67%
5 Year Change18.82%
Change since IPO348.56%

Recent News & Updates

Sep 19

Wendy's: Potential For A Stunted Traffic Recovery

Summary Wendy's released its Q2 results last month, reporting better than expected sales performance in what was a difficult period for the industry due to shrinking discretionary budgets. While margins declined in the period and remain below Q2 2019 levels, the company unveiled a new restaurant design, providing more convenience and potential productivity gains. Unfortunately, while this was positive and helped the stock make a new multi-month high in mid August, a potential linkage to E. Coli combined with market weakness has halted the rally. Based on Wendy's potentially seeing less of a traffic recovery than peers in H2 due to the recently reported E. Coli scare, I don't see any way to justify paying above $20 for the stock, and I see better opportunities elsewhere. Just over six months ago, I wrote on Wendy's (WEN), noting that dips below $21.00 would likely provide buying opportunities, given that the stock would become attractively valued at this level. While the stock rallied nearly 10% off this level in March, it made yet another lower high at $22.70, and it's been a difficult few months since. This is because, on top of the industry's traffic declines due to tightened discretionary budgets, Wendy's has been receiving negative headlines related to a potential E. Coli outbreak. The potential link to Wendy's was reported in mid August, with romaine lettuce from sandwiches potentially responsible for an outbreak that left dozens sick and hospitalized ten people. The potential Wendy's linked outbreak was expanded to six states in September, with 97 illnesses and 43 hospitalizations, prompting Wendy's to remove salad lettuce from some sandwiches and reassuring customers that the lettuce used in salads is different. According to the CDC, 10 affected developed hemolytic uremic syndrome, a condition that damages blood vessels and can cause kidney failure. Wendy's Menu (Company Twitter Account) While 43 hospitalizations may not appear that significant relative to Chipotle's (CMG) 2015 scare that made 700 sick, it's likely to hurt WEN's traffic in Q3, with the potential for much worse trends in states that were affected (Indiana, Michigan, Pennsylvania, Ohio, New York, Kentucky). This is not ideal at a time when industry-wide traffic is attempting a rebound, helped by lower gas prices. Given the potential for an earnings miss on softer H2 results and the stock's recent support break, I don't see any way to justify chasing the stock above $20. Q2 Results Wendy's released its Q2 results last month, reporting quarterly system-wide sales of ~$3.42 billion, translating to 5.6% growth, helped by nearly 3% unit growth and better than expected sales performance. From a same-restaurant sales standpoint, Wendy's reported a growth rate of 3.7% in Q2, which lapped 17.4% growth in the year-ago quarter, translating to a two-year stacked same-restaurant sales growth of 21.2%. The solid performance exceeded the company's expectations despite a difficult period for the industry, aided by traffic share growth in the US breakfast daypart and menu pricing (8%). Wendy's - Quarterly Revenue (Company Filings, Author's Chart) Moving over to quarterly revenue, we can see that it was up 9% year-over-year to $537.8 million, which was driven by higher sales at company-owned restaurants with the acquisition of 93 franchised restaurants in Florida and higher royalty and ad fund revenue. Wendy's noted that it also saw its global digital sales mix come in at 10%, and it has now launched breakfast in Canada, hoping that this will improve profitability in its Canadian restaurant fleet. In the US, its breakfast segment remains strong, and Wendy's is confident in its goal of $3,000/week in sales, up 10% year-over-year and well above its break-even level of $2,000/week. Wendy's Menu Innovation (Company Website) Unfortunately, although Wendy's put together solid results during a period of weaker traffic industry-wide (rising gas prices, grocery costs, and mortgage costs), margins did slide sharply year-over-year. This was evidenced by a 580 basis point decline in company-owned restaurant margins year-over-year (14.5% vs. 20.3%). It's worth noting that these margins were up against tough comps, but they are still down 200 basis points from pre-COVID-19 levels (Q2 2019: 16.5%), despite the benefit of additional pricing, with Wendy's running at ~8.0% pricing in the quarter. The company noted that it plans to take additional pricing of 2.0% in Q3 to help combat inflation, with margins pressured by commodity inflation of 19% and labor inflation of 12%. In addition, as we've heard from some other brands, there appears to be somewhat of a consensus that turnover rates are improving and inflation may be peaking. This would be good news for the company, which saw a decline in operating profit in the period despite the near double-digit revenue growth. Meanwhile, adjusted earnings per share slid 11% ($0.24 vs. $0.27), impacted by a higher tax rate and higher interest expense. Overall, this was a solid quarter for Wendy's, and the company is looking for ways to boost productivity to help claw back lost margins with its recent Global Next Gen design. This will include a delivery pick-up window, dedicated mobile order pick-up, and a galley-style kitchen to increase efficiency, with the kitchen running from the front to the back of the restaurant. According to the company, this will decrease the steps required to complete tasks and allow the crew to slide between positions more easily. Wendy's New Restaurant Design (Company News Release) Given the solid quarter, it's no surprise that Wendy's share price rebounded, coupled with the decline in gas prices, which peaked in late June above $5.00/gallon, and improved sentiment for the industry. However, while several other brands might have seen a meaningful improvement in traffic as gas prices took another leg down below $4.00/gallon (easing the pressure on discretionary budgets), it's possible that Wendy's might see a negative divergence. This is because Wendy's has several competitors in the burger category, and value or not, an E. Coli scare might have caused some consumers to take a pass, opting for Burger King (QSR) or McDonald's (MCD) instead. A Stunted Traffic Recovery Relative To Peers? As noted earlier, there were reports of E. Coli potentially linked to Wendy's romaine sandwich lettuce in mid-August, and the outbreak expanded to six states in September. This led to the CDC providing an Investigation Notice, highlighting that "many sick people reported eating sandwiches with romaine lettuce at Wendy's restaurants." The Investigation Notice also stated that six states were believed to be affected, the investigation remained active, and 43 were hospitalized, with 97 total illnesses. While Wendy's provided notice on its blog that it was fully cooperating and had removed sandwich lettuce at some restaurants, not everyone reads Wendy's blog, and even those that did might have preferred to wait a month to ensure everything blew over, similar to the brief Chipotle boycott by some in 2015/2016. In addition, quick service - QSR - eating can often be an impulse decision. Any potential friction (anxiety about a recent E. Coli scare) could lead to some choosing to wait till they get home to eat or simply visiting another QSR brand, with over a dozen other options out there for those craving a burger, and several that also offer value for customers that are looking to spend less than $10.00. E. Coli Investigation ((CDC)) This could be a negative development for Wendy's at a time when the industry could be seeing an uptick in traffic as gas prices have spent an entire month below $4.00/gallon, increasing consumers' appetite to dine out. Based on this, I'm less confident in the company's ability to accelerate system-wide sales in the back half of the year (guidance: FY2022 growth of 6-8%), even with the benefit of a slight increase in pricing. Hence, while many restaurant brands might be able to beat downward-revised earnings estimates, WEN could have difficulty meeting its FY2022 earnings estimates of $0.84 - $0.88, which would require $0.45 in H2 2022 EPS to meet the mid-point. Earnings Trend Looking at WEN's earnings trend below, the company has seen solid annual EPS growth over the past decade, growing annual EPS at a high double-digit compound annual growth rate even with wading through a global pandemic. However, based on more conservative estimates of $0.84, we could see limited growth in FY2022 (2.5% year-over-year), leading to a deceleration in its compound annual EPS growth rate from 16.6% to 14.7% (FY2014-2022). WEN Earnings Trend (YCharts.com, Author's Chart) The good news is that Wendy's is expected to report record annual EPS growth in FY2023 based on conservative estimates of $0.97, which would translate to a return to double-digit growth year-over-year. However, this would still see its compound annual EPS growth rate sink from ~24% (FY2012-FY2018) to less than 15.0% if it meets these estimates. It's possible this could lead to some multiple compression vs. the premium multiple the stock has enjoyed over the past decade, especially given the near-unprecedented industry-wide headwinds related to commodity inflation and continued staffing challenges, and elevated turnover for some brands. Valuation and Technical Picture Looking at the chart below, we can see that Wendy's has historically traded at ~32x earnings (15-year average), but this was during a period of accommodative monetary policy, modest wage inflation relative to current levels, and much lower inflation levels in general. This is not the case currently, with a Federal Reserve laser focused on stamping out inflation, multi-decade highs in wholesale food prices, and what appears to be a shift away from the industry with the "Great Resignation." Most importantly, though, Wendy's is now in the spotlight for a negative reason due to a potential linkage to an E. Coli outbreak. These headwinds make it difficult to justify paying a premium valuation for the stock, suggesting that while paying 25x earnings might normally be a buying opportunity, using a more conservative multiple might be necessary to build an adequate margin of safety into the stock. In fact, if we look at Chipotle, the company saw its earnings multiple nearly halved from 51 to less than 28 despite growing its units like a weed (~11% growth) during the period and being one of the industry's best growth stories.

Sep 09

Wendy's gains amid bullish call buying activity

Wendy's (NASDAQ:WEN) rose 3.7% amid some bullish call buying activity. Wendy's (WEN) traded 40,000 call options at Nov. $20 strike price, CNBC commentator Jon Najarian highlighted on Friday. Najarian pointed out that Wendy's traded 29,000 calls all last month. The move in Wendy's comes after the fast food chain and active investor Trian Partners in late May proposed a potential acquisition of the company. Trian, run by famed billionaire investor Nelson Peltz, disclosed owning a total of 41.6 million shares of Wendy's (WEN), or a 19.4% stake, in a 13D filing at the time. Trian and Peltz have a long history with the hamburger chain and have been holders of Wendy's (WEN) for almost two decades. Recall that in 2008 Triarc Cos., the investment arm of Peltz, purchased Wendy's for $2.2 billion at the time, combining the hamburger chain with the Arby's chain.

Aug 30

Wendy's: Tasty Returns In A Frosty Market Environment

Summary The Wendy's Co. flourishes with its sustained revenue growth and margin expansion. Its dividends are increasing and well-covered with a Payout Ratio ranging at 50-70%. Its restaurant openings, new global restaurant concepts, and digital transformation present more potential growth prospects. Wendy's stock price uptrend remains strong. The Wendy's Company (NASDAQ: WEN) remains unperturbed amidst the pandemic and inflationary pressures. It keeps its footing with more solid and intact fundamentals. So, more enticing growth catalysts are anticipated this year. Thanks to its innovation towards customers, crews, and enhanced digital capabilities of its services. Likewise, the stock price indicates a promising future for investors. With its foundations and dividend payments, this optimism makes sense. Company Performance Wendy's Company was able to cushion the unfavorable effects of the pandemic in 2020. Revenue growth went down because of the restrictions that disrupted the supply chain. The limited operations produced more problematic outcomes, as a result. Along with the constraints, the rise in unemployment decreased demand. WEN had to reduce its operations, which caused a 6.04% decline in revenue growth. Still, it was an increase to $1.73 billion from $1.71 billion. Similarly, expenses were cut to keep the core business. As a result, the company was able to raise its margin to 3.09%, or $14.66 million. It remained open all year long. Its resilience allowed it to deal with challenging market conditions. The operations of Wendy's Company are more stable now. Its operating revenue of $538 million is a 9.41% year-over-year increase. It has a stronger momentum that highlights its solid business model in a stormy market landscape. For three consecutive quarters, it enjoys a double-digit same-restaurant sales growth of 21%. Aside from the external factors, change starts within itself. It enhances its digital capacity, which is a vital aspect to capture more demand. Note that cashless and virtual transactions are preferred today. As more people adapt to technology, its digitalization becomes a growth engine. Franchise royalty revenue is one of its cornerstones. It is more stable than SRS since royalty fees are more fixed. With the splurge in demand, both segments are speeding up revenue growth. Operating Revenue (MarketWatch) Even better, it appears to be exceeding pre-pandemic levels as shown by the current revenue trend. It also becomes more efficient as it keeps its costs and expenses low while expanding. Unsurprisingly, sales and profits remain on the rise. The operating margin remains substantial at 17%. Because of the reopening of borders and the loosening of restrictions, its production level is going back to normal. Operating Margin (MarketWatch) The thing is, Wendy’s continues to expand its operating capacity while improving its scalability. Its store openings are timely as the demand for restaurants heats up. It is one of the biggest QSR chains in the world, serving millions of customers daily from over 7,040 stores across the globe. It also has more market visibility with 121 store openings in 2021. It is a strategic move in line with the higher spending of Americans on fast foods. On average, an American spends $1,200, which may increase by 2.2% every year. So, the opening of more restaurants may aid in meeting more demand and serving more customers. Given Wendy's loyal client base and strong brand, it is likely to be achieved. Currently, Wendy’s Co holds 3.7% of the market share as of Q2 2022. It is a slight increase from 3.5% in the previous year. Its year-over-year revenue growth is lower than the top peers and the market average. It may still have to work on some of its strategies since many of its peers are growing faster. But, the data shows its potential to go head-to-head with other QSRs, especially since it increases its market share. The industry offers more growth prospects it may optimize to stimulate its performance. Market Share (MarketWatch) Revenue Growth (MarketWatch) Potential Risks and Growth Prospects Today's opportunities are greater due to the industry's unmet demand. Whether in brick-and-mortar or online stores, it creates more strategies to cater to more customers. According to statistics, in the coming years, the global fast food market may reach $998 billion. Fortunately, the business keeps up with changes in the market and customer preferences. These are the potential areas of growth for Wendy's Co. But of course, it has to watch out for potential market headwinds. Despite the demand upsurge, inflation remains high despite the slight lull from 9.1% to 8.5%. Restrictions in some countries remain tight. Border reopenings and port congestion improvement are still slow. Also, the geopolitical unrest in Europe is making energy commodities more expensive. Fortunately, WEN does not seem to relax now. It appears prepared to cushion these potential blows. It continues to expand to bridge the demand gap while increasing its digital scalability. It enhances digital applications and plans to open a new global restaurant design. The digital and new global restaurant standard design element will increase efficiency in addition to attracting more customers. Order processing times may be reduced, and customer satisfaction will rise. Therefore, even though it meets more demand, it might manage to keep expenditures and expenses under control. Hence, Wendy's Co. should strategically manage its IT spending. Competitive Advantage And Store Openings To attract more customers this year, store openings are crucial. Wendy's already had 121 restaurants open internationally by 2021. It has 121 net new restaurant openings planned for the following six years. Out of the 121 target restaurants, 91 have already been opened as of 2022. If the operating revenue is divided among all restaurants, the average revenue rises from $253,000 to $273,000 in this case. That is the contrast between things before and after the establishment of the 121 restaurants. WEN can therefore accommodate more diners when additional eateries open and increase demand. It displays the marginal revenue of $82,000 on average for each restaurant. As a result, WEN keeps growing its capacity and expanding into new areas. The total will climb by 8% to $2.08 billion if we factor in the additional 121 stores. Taking into account the 121 new stores for 2023 and 2024, the operating revenue in 2023 and 2024 may be $2.24 billion and $2.42 billion, respectively. These are still within my projection of 6-8% for the following five years and 8% revenue growth in 2022–2023. Also, it is within the five-year average. As costs and expenses become more controllable, the operating margin may rise. Total Number of Restaurants (Wendy's 2Q Report) Operating Revenue (Author Estimation) WEN Must Watch Out Its Financial Standing The company’s current ratio is very high as it may indicate a problem with managing its allocation. However, it has a lot of Cash and Cash equivalents to cover its current obligations. Total borrowings increased from $3.8 billion to $4.3 billion. Cash and equivalents also rose from $707.79 million to $886.55 million. So, cash relative to borrowings increased from 19% to 21%. But, it has to do better to keep up with its long-term borrowings. Note that its Net Debt/EBITDA is 7.2x, which is way higher than the ideal ratio. Cash and Borrowings (MarketWatch) The business continues to make money, which also aids in meeting its current obligations. Its Free Cash Flow ((FCF)) of $58.77 million enables us to verify the growing profitability and sustainability. Despite an $18.45 million CAPEX, the FCF-to-Sales Ratio is currently at 0.01%. The business keeps its costs and expenses low as it strives to grow. Now that it has resources, it can pay for its growth and its duties to its stakeholders. I predict that the FCF-to-Sales Ratio will rise to only 12% over the next six years due to the rise in CapEx driven by new restaurant openings. Therefore, the value might increase from $20.66 to $36.41 million. FCF-to-Sales Ratio (MarketWatch) Stock Price Valuation WEN has somewhat increased since its dip on May 11. In the last two months, it appears to be moving sideways. At $19.47, the stock price is still lower by 17% than the starting price and 20% higher than the dip. But, it does not appear to be cheap, given its price ratios. It is trading with an earnings multiple of 24-25x, although within the peer average. It is neither too expensive nor too cheap.

Aug 26
Wendy's' (NASDAQ:WEN) Dividend Will Be $0.125

Wendy's' (NASDAQ:WEN) Dividend Will Be $0.125

The Wendy's Company's ( NASDAQ:WEN ) investors are due to receive a payment of $0.125 per share on 15th of September...

Shareholder Returns

WENUS HospitalityUS Market
7D-2.0%-0.2%-2.5%
1Y-16.2%-34.1%-23.2%

Return vs Industry: WEN exceeded the US Hospitality industry which returned -34.1% over the past year.

Return vs Market: WEN exceeded the US Market which returned -23.2% over the past year.

Price Volatility

Is WEN's price volatile compared to industry and market?
WEN volatility
WEN Average Weekly Movement3.7%
Hospitality Industry Average Movement7.3%
Market Average Movement6.8%
10% most volatile stocks in US Market15.5%
10% least volatile stocks in US Market2.8%

Stable Share Price: WEN is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 4% a week.

Volatility Over Time: WEN's weekly volatility (4%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
19699,667Todd Penegorhttps://www.wendys.com

The Wendy's Company, together with its subsidiaries, operates as a quick-service restaurant company. It operates through three segments: Wendy’s U.S., Wendy’s International, and Global Real Estate & Development. The company is involved in operating, developing, and franchising a system of quick-service restaurants specializing in hamburger sandwiches.

The Wendy's Company Fundamentals Summary

How do Wendy's's earnings and revenue compare to its market cap?
WEN fundamental statistics
Market CapUS$3.98b
Earnings (TTM)US$178.86m
Revenue (TTM)US$1.57b

22.2x

P/E Ratio

2.5x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
WEN income statement (TTM)
RevenueUS$1.57b
Cost of RevenueUS$857.86m
Gross ProfitUS$716.84m
Other ExpensesUS$537.98m
EarningsUS$178.86m

Last Reported Earnings

Jul 03, 2022

Next Earnings Date

Nov 09, 2022

Earnings per share (EPS)0.84
Gross Margin45.52%
Net Profit Margin11.36%
Debt/Equity Ratio676.8%

How did WEN perform over the long term?

See historical performance and comparison

Dividends

2.7%

Current Dividend Yield

60%

Payout Ratio