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Here's Why Investors Should Hold on to Wendy's (WEN) Stock

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The Wendy's Company (WEN - Free Report) is likely to benefit from menu innovation, technological upgrades and international expansion. However, dismal traffic due to the coronavirus pandemic remains a woe. In the past three months, the company’s shares have inched up 0.8%, compared with the industry’s rally of 5.9%.

Key Catalysts

Wendy’s is committed to expanding presence globally. Thereby, the company’s international business is poised to be a key growth driver. Notably, the company anticipates the count to increase to 1500 restaurants internationally and double its sales to approximately $2 billion by 2024. Markedly, with a strong pipeline of locations and talent team in place, the company is optimistic regarding its oppurtunities in international markets. During second-quarter 2020, Wendy’s had 22 global restaurant openings with an increase of one net new unit. The company is planning to expand into Europe and is likely to open restaurants in the U.K. in the first half of 2021.

In third-quarter 2020, the company delivered highest global same-restaurant sales growth number in more than 15 years. Comps at Global restaurants improved 6.1%, compared with growth of 4.4% in the prior-year quarter driven by strength of breakfast daypart. Moreover, comps in the United States witnessed an increase of 7% compared with 4.5% growth in the year-ago quarter. The uptrend continues in October as the U.S. same-restaurant sales rose 6.6% year over year. Canada and Puerto Rico, which comprise about 75% of the company’s sales, are witnessing sales growth. The company’s 95% of restaurants are operating.

The Zacks Rank #3 (Hold) company is capitalizing on benefits of technology. It is investing in areas like mobile payment, mobile ordering and customer self-order kiosks that provide benefits such as consumer convenience, increased customer count, higher check and faster speed of service. We expect these measures to help the company in sustaining the trend of positive comps going forward. In addition to improving overall customer convenience, these are likely to drive additional output during peak hours and provide labor leverage.

Concerns

The coronavirus pandemic is expected to materially affect the company's operating and financial results for full-year 2020. The company has been undertaking numerous measures to protect employees, customers and business partners. Although, majority of the stores have re-opened after coronavirus-led shutdown traffic are still well below pre-outbreak level. Even though markets in Canada, Puerto Rico and New Zealand are catching up, complete recovery is likely to take time.

Moreover, high debt remains a concern. At the end of Sep 27, 2020, the company’s long-term debt stood at $2.2 billion, almost flat with the Jun 28, 2020 level. Notably, the company’s debt-to-capitalization was 84.1% compared with 85.6% at the end of second-quarter 2020. However, the company ended third-quarter fiscal 2020 with cash and cash equivalent of $313.2 million compared with $338 million at the end of second-quarter fiscal 2020, which may not be enough to manage the high-debt level.

Key Picks

Some better-ranked stocks worth considering in the same space, include Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and Fiesta Restaurant Group, Inc. (FRGI - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cracker Barrel earnings for fiscal 2021 is likely to witness growth of 152.9%.

Darden Restaurants has a three-five year earnings per share growth rate of 19.5%.

Fiesta Restaurant’s 2021 earnings are expected to soar 418.8%.

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