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:
- Charitable Initiatives: On April 21, 2022, WEN said today that it would provide philanthropic payments to several organisations in the United States and Canada that align with Wendy's key charitable support categories: foster care adoption, hunger and food integrity, kids and families, and dynamic communities. Wendy's Community Giving Program, which began in 2020, continues with these pledges.
- Quarterly Dividend: On May 11, 2022, WEN's Board of Directors had approved quarterly dividend of 12.5 cents per share, payable on June 15, 2022, to shareholders of record on June 1, 2022.
Q1FY22 Results:
- Growth in Topline: The company reported a YoY growth 6.18% in revenues to USD 488.64 million in Q1FY22 (ended April 03, 2022) from USD 460.20 million in Q1FY21, attributable to YoY 6.64% growth in Wendy’s U.S. segment.
- Decline in Profitability: In Q1FY22, WEN's net income reduced to USD 37.40 million from USD 41.37 million in Q1FY21.
- Cash and Debt Position: The company had USD 741.22 million in cash and cash equivalents as of April 03, 2022, and total debt of USD 3.44 billion.
Key Risk:
- Dependence on Third Parties: Franchisees operated nearly 95% of Wendy's locations as of January 2, 2022. Wendy's franchisees must follow the guidelines established in our franchise and other agreements. Wendy's also provides training and support to franchisees. On the other hand, franchisees are unaffiliated third parties over whom WEN has no authority, and franchisees own, run, and oversee their restaurants' daily operations. These third parties' failure to meet their contractual obligations could harm the company's finances.
Outlook:
2022 Outlook (Source: Earnings Presentation, Q1FY22, May 11, 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 26.98% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 15.77 to USD 29.46. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 21.64.
Considering the significant correction in the stock price, industry above margins, positive outlook, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the current price of USD 17.30, up 0.64% as of May 13, 2022, at 11:01 AM PDT.
Three-Year Technical Price Chart (as on May 13, 2022, at 11:01 AM PDT). 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.
Note 3: The report publishing date is as per the Pacific Time Zone.
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