Shares of the world's third-largest quick-service hamburger company The Wendy's Company (WEN - Free Report) hit a 52-week high of $12.31 on Nov 17. However, the company ended the day’s trading a trifle lower at $12.20.
The company’s shares have been climbing and have gained nearly 8% since it posted better-than-expected third-quarter 2016 results on Nov 9, with earnings as well as revenues beating the Zacks Consensus Estimate.
In fact, backed by encouraging third-quarter results, the company raised its guidance for profit and EPS. For 2016, Wendy’s now expects earnings per share in the range of 40 cents to 41 cents, up from its prior projection of 39 cents to 40 cents. Also, it now expects adjusted EBITDA in the higher range of its previously issued range of flat to up 1%.
Notably, the company’s solid menu pipeline, limited time offers (LTO), marketing initiatives and increased investments in technology-driven initiatives are improving its top line and margins, as is evident from the 15 consecutive quarters of comps growth since the beginning of 2013. We expect these measures to help the company to maintain the trend going forward.
Wendy’s international business is poised to be a driver of growth in the future. The company has growth plans and partnerships in Argentina, the Philippines and Japan. Further, Wendy’s has long-term development agreements with franchisees in various countries. Additionally, the company is exploring growth opportunities in China, Brazil and other key international markets.
Meanwhile, per the system optimization program, the company intends to decrease its ownership to approximately 5% of the total restaurants by the end of 2016. The planned sale of 315 domestic restaurants to franchisees is on schedule. The company continues to expect the third phase of system optimization to generate pretax proceeds of approximately $435 million.
As part of the program, Wendy’s is also working on reimaging. The company and its franchisees plan to reimage 500 North America system restaurants and open approximately 100 new North America restaurants in 2016. The company plans to remodel at least 60% of Wendy's North America restaurants by the end of 2020.
However, owing to the re-imaging of restaurants and the impact of the sale of restaurants under the system optimization initiative, comps might be stressed in the near term. Further, higher costs, and a soft consumer spending environment in the U.S. restaurant space raise concerns.
Zacks Rank & Other Stocks to Consider
Wendy’s has a Zacks Rank #2 (Buy). Other favorably placed stocks in this sector include Domino's Pizza, Inc. (DPZ - Free Report) , McDonald's Corp. (MCD - Free Report) and Papa John’s International, Inc. (PZZA - Free Report) . While Domino’s sports a Zacks Rank #1 (Strong Buy), Darden and Papa John’s carry the same Zacks Rank as Wendy’s. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Domino’s 2016 earnings moved up 2.4% over the last 60 days. Meanwhile, for full-year 2016, EPS is expected to improve 22.8%.
The Zacks Consensus Estimate for McDonald's 2016 earnings climbed nearly 2% over the last 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 6.16%.
Papa John’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 11.31%. Further, for 2016, EPS is expected to grow 19.9%.
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