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Wendy's (WEN): A Beat in the Cards this Earnings Season?

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We expect The Wendy's Company (WEN - Free Report) to beat expectations when it reports third-quarter 2016 numbers on Nov 9, before the opening bell.

Last quarter, Wendy’s posted a positive earnings surprise of 11.11%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 29.01%.

Let’s see how things are shaping up for this announcement.

WENDYS CO/THE Price and EPS Surprise

 

WENDYS CO/THE Price and EPS Surprise | WENDYS CO/THE Quote

Why a Likely Positive Surprise?

Our proven model shows that Wendy’s is likely to beat on earnings because it has the perfect combination of the two key ingredients.

Zacks ESP: Earnings ESP for Wendy’s is +10.00% because the Most Accurate estimate is pegged at 11 cents while the Zacks Consensus Estimate is at 10 cents. A favorable Zacks ESP serves as a meaningful indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises. 

Zacks Rank: Wendy’s currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note that stocks with a Zacks Rank #1, 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Wendy’s favorable Zacks Rank and positive ESP makes us reasonably confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

Wendy’s brand transformation initiatives like menu innovation, promotional offers, bold new packaging and increased focus on marketing should drive its results in the to-be-reported quarter.

Also, increased investments in technology like mobile payment, mobile ordering and customer self-order kiosks should quicken service and thus, result in increased customer count. Notably, reimaging of restaurants is also expected to increase traffic and drive higher sales at its restaurants.

However, Wendy’s revenues have been declining year over year over the past few quarters due to the reduction in the number of company-operated restaurants. We do not expect revenues to improve much this quarter either. Moreover, a soft consumer spending environment in the U.S. restaurant space might further hurt traffic and comps in the to-be-reported quarter.

Stocks to Consider

Wendy’s is not the only company looking up this earnings season. Here are some other companies to consider as our model shows that they too have the right combination of elements to post an earnings beat this quarter:

Hibbett Sports, Inc. (HIBB - Free Report) has an Earnings ESP of +4.00% and a Zacks Rank #2.

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +15.39% and a Zacks Rank #3.

Wal-Mart Stores Inc. (WMT - Free Report) has an Earnings ESP of +1.04% and a Zacks Rank #3.

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