On Dec 23, we issued an updated research report on the world's third-largest quick-service hamburger company The Wendy's Company (WEN - Free Report) .
Though the U.S. restaurant industry is going through its worst year since the end of the recession, Wendy’s seem to be apparently immune to the present conditions.
Notably, the third quarter of 2016 marked the 15th consecutive quarter of positive same-store sales growth, indicating long-term strength and relevance of the brand. We expect the company’s solid menu pipeline, limited time offers (LTO), marketing initiatives and increased investments in technology-driven initiatives to maintain the trend going forward.
Moreover, Wendy’s shares have outperformed the broader Zacks categorized Retail-Restaurants industry over the past six months. While the stock surged nearly 43%, the broader industry gained over 3% during the same time period.
Upward estimate revisions further reflect optimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2016 and 2017 earnings moved north by 2.5% and 2.3%, respectively, over the last 60 days.
Wendy’s international business is also poised to be a driver of growth in the future. The company has growth plans and partnerships in Argentina, the Philippines and Japan. It also 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, Wendy’s revenues have been declining year over year over the past few quarters due to reduction in the number of company-operated restaurants. Though transition to a franchise-based business model has been weighing on revenues in the near term, it would lower Wendy’s general and administrative expenses and in turn, boost earnings going forward.
Yet, high 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 Papa John's International Inc. (PZZA - Free Report) , Wingstop Inc. (WING - Free Report) and The Cheesecake Factory Inc. (CAKE - Free Report) . All these stocks carry the same Zacks Rank as Wendy’s. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Papa John’s 2016 earnings moved up 2.4% over the last 60 days. For the full year, earnings are expected to improve 19.9%.
The Zacks Consensus Estimate for Wingstop’s 2016 earnings climbed 1.8% 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 11.99%.
Cheesecake Factory’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 10.84%. Further, for 2016, EPS is expected to grow 19.5%.
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