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Leading quick-service restaurant chain, The Wendy's Company (WEN - Analyst Report) started a transitioning to a franchise-based model in Jul 2013 to boost business. As per this system optimization initiative, the company intends to divest nearly 415 company-operated restaurants by the end of first-quarter 2014 across 13 U.S. markets, of which 314 units have already been sold.

Wendy's expects to earn proceeds of $235 million from the sales of these restaurants. Earlier, the restaurateur has expected to complete the divestiture by the end of second-quarter 2014.

In connection to this initiative, recently the restaurateur divested 70 outlets in Dallas-Fort Worth, Texas to an existing franchisee, MUY Hamburger Partners, LLC. The financial terms of the deal were not disclosed.

MUY Hamburger Partners has been associated with Wendy’s for quite some time. Following these divestments, the franchisee will manage as many as 87 Wendy’s units across its home court — Texas.  Adequate local market knowledge and financial position make MUY Hamburger Partners a perfect franchisee for the Dallas-Fort Worth metroplex area.

Wendy’s continues to divest its units, mainly in the West. These initiatives aim to boost the company’s restaurant portfolio.   

Apart from divesting restaurants, the company also plans to renovate some of its existing units based on the Image Activation format. Operators with a proven track record and confirming to the company’s reimaging program are being chosen for this transition.

The brand transformation initiative also includes expansion, closure of underperforming units and several other growth initiatives. These moves will help the company to streamline its operations while augmenting its operating margin and generate more free cash flow. Moreover, this will help the company to grow through franchising, thus driving earnings and top-line expansion in the form of royalty and rental income.

Other Stocks to Consider

Wendy’s currently sports a Zacks Rank #2 (Buy). Some better-ranked stocks in the restaurant industry include Fiesta Restaurant Group, Inc. (FRGI - Snapshot Report), Brinker International, Inc. (EAT - Analyst Report) and Buffalo Wild Wings Inc. (BWLD - Analyst Report). While Fiesta Restaurant sports a Zacks Rank #1 (Strong Buy), Brinker and Buffalo Wild Wings carry the same Zacks Rank as Wendy’s.

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