The Wendy’s Company
WEN Details
The Wendy’s Company (NASDAQ: WEN) operates, develops, and franchises a quick-service restaurant franchise system. Wendy's U.S., Wendy's International, and Wendy's Global Real Estate & Development are the company's three segments. The Wendy's U.S. segment includes Wendy's restaurant operations and franchising in the United States. Wendy's International is responsible for operating and franchising Wendy's restaurants in countries and territories outside of the United States. The Global Real Estate & Development segment includes real estate activity for owned and leased from third-party sites that are hired and/or subleased to franchisees and its share of the TimWen real estate joint venture's income.
Latest News:
- New Franchise Recruitment Initiative: On February 28, 2022, WEN had launched Own Your Opportunity, a new franchise recruitment initiative that will pave the way for entrepreneurs who want to grow with the Wendy's® System through franchising. The initiative broadens restaurant ownership opportunities for everyone and contributes to the Company's goal of increasing restaurant ownership among underrepresented groups, particularly women and people of color.
- Quarterly Dividend : On February 23, 2022, WEN's Board of Directors had approved an increase in the quarterly cash dividend rate from 12 cents to 12.5 cents per share, an increase of approximately 4%. The growth will take effect with the next quarterly dividend payment, which will be paid on March 15, 2022, to shareholders of record on March 7, 2022.
FY21 Results:
- Growth in Topline: The company reported a YoY growth 9.41% in revenues to USD 1.90 billion in FY21 (ended January 02, 2022) from USD 1.73 billion in FY20 (ended January 03, 2021), attributable to YoY 20.69% growth in Franchise royalty revenue and fees.
- Improvement in Profitability: In FY21, WEN's net income increased to USD 200.39 million from USD 117.83 million in FY20.
- Cash and Debt Position: The company had USD 249.44 million in cash and cash equivalents as of January 02, 2022, and total debt of USD 2.96 billion.
Key Risk:
- Dependence on Third-Parties: As of January 2, 2022, Franchisees operated approximately 95% of Wendy's restaurants. Wendy's franchisees must operate their restaurants under the standards outlined in our franchise and other agreements with them. Wendy's also offers franchisees training and support. However, franchisees are unaffiliated third parties over whom WEN have no control, and franchisees own, operate, and oversee the daily operations of their restaurants. Failure on the contractual obligation by these third parties could harm the company's financials.
Outlook:
2022 Outlook (Source: Earnings Presentation, Q4FY21, March 01, 2022)
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation
WEN’s stock price has fallen 5.09% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 20.23 and USD 29.46. We have valued the stock using Price/Earnings-based valuation methodology and arrived at the target price of USD 27.27.
Considering the correction in the stock price, new franchise recruitment initiatives, positive outlook, associated risks, and current valuation, we recommend a “Buy” rating at the closing price of USD 21.96, up 0.18% as of March 28, 2022.
Three-Year Technical Price Chart (March 28, 2022). Source: REFINITIV, Analysis by Kalkine Group
Technical Analysis Summary:
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
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