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Here's Why You Should Add Wendy's (WEN) to Your Portfolio

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The Wendy's Company’s (WEN - Free Report) focus on Breakfast daypart offerings, efforts to expand footprint across the Republic of Georgia, Uzbekistan and Kazakhstan, and menu innovation bode well. The company’s shares have gained 12.8% in the past six months, compared with the industry’s rally of 13.6%. The aforementioned factors are likely to drive the stock higher in the coming days.

The Zacks Rank #2 (Buy) company has an impressive long-term earnings growth rate of 14%. In the past 60 days, earnings estimate 2021 and 2022 have witnessed upward revisions of 7.2% and 5%, respectively.

Growth Drivers

Wendy’s continues to focus on Breakfast daypart Offerings to drive incremental sales. Since its launch on Mar 2, 2020 across the United States, the model has contributed 6.2%, 6.4% and 6.3% to U.S. systemwide same-restaurant sales during fiscal second, third and fourth quarter of 2020, respectively. During the fiscal fourth quarter, breakfast made up for approximately 7% of sales. In first-quarter 2021, breakfast accounted for nearly 7% of sales. It contributed significantly to restaurant average unit volumes (or AUV). The company has been benefiting from its marketing efforts, high-quality offerings, repeat ordering and high customer satisfaction levels. Going forward, it remains bullish on this business model with plans to boost breakfast daypart sales by 30% in 2021.

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Recently, Wendy's announced three expansion agreements with the owners of Kusto Group and Global Investors Limited. This collaboration will help the company bolster its brand expansion in Central Asia within the next nine years. Wendy’s expects to bolster presence across the Republic of Georgia, Uzbekistan and Kazakhstan by 2030 through this partnership. The company anticipates boosting store count to 65 in the region.

The company continues to impress investors with robust global same-restaurant sales growth. After posting global same-restaurant sales growth of 4.3% and 4.7% in third and fourth-quarter 2020, respectively, the company reported global restaurants comps sales improvement of 13%. Wendy's first-quarter 2021 global comps growth surpassed its own expectations. Comps in the United States witnessed an increase of 13.5% compared with flat in the year-ago quarter. The upside was driven by strength of rest-of-day business, breakfast, digital and stimulus payments. Internationally, the company’s same-restaurant sales grew 7.9% in first-quarter courtesy of robust performance of Canadian and Puerto Rico business.

Margin, an important financial metric that gives an indication about the company’s health, has accelerated in first-quarter fiscal 2021. Company-operated restaurant margin was 17% in the reported quarter compared with 10.1% in the year-ago quarter. The increase can primarily be attributed to higher average check. However, this was partially offset by customer count declines due to the pandemic and rise in labor costs. In 2021, company-operated restaurant margin is expected in the range of 16% to 17% owing to increase in sales outlook and rise in average checks.

Other Key Picks

Some other top-ranked stocks, which warrant a look in the same space, include Bloomin' Brands, Inc. (BLMN - Free Report) , Papa John's International, Inc. (PZZA - Free Report) and Ruth's Hospitality Group, Inc. (RUTH - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bloomin' Brands has reported better-than-expected earnings in each of the trailing four quarters, with average surprise being 85.2%.

Papa John's International has an impressive long-term earnings growth rate of 15%.

Ruth's Hospitality earnings in 2021 is likely to witness growth of 381.6% year over year.

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