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Wendy's (WEN) 500th International Outlet Opens in Guatemala

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The Wendy's Company (WEN - Free Report) yesterday announced that it has opened its 500th international restaurant in Guatemala City.

The outlet was opened through the company’s franchise organization, Alimentos Corporativos Coralsa, which operates 13 restaurants in Guatemala and employs more than 400 Wendy staff.

Wendy's president and CEO Todd Penegor stated, "this is a great achievement that we attribute to the strength of our brand and partnerships with exceptional and dedicated franchisees who are committed to developing Wendy's abroad."

We observe that shares of Wendy's have rallied 28.4% in the past year, outperforming the industry’s gain of 20.1%.

Leveraging Opportunities in Less Saturated Emerging Markets

The move that followed recent openings in Indonesia, Malaysia, Brazil and Chile is part of the company’s consistent efforts to build a strong international presence by expanding in less saturated emerging markets.

These markets offer significant opportunities to companies like Wendy’s to expand due to their relatively low per-capita consumption and rising income levels of the middle class that has led to an increase in demand for convenience food and beverages.

Wendy’s remains on track to achieve its goal of 7,500 global restaurants by 2020.

Boosting Earnings and Cash Flow Through Franchisee Based Model

The move is just another example of how well Wendy’s is focused on boosting its franchisee related revenues. Franchising a large chunk of its system lowers its general and administrative expenses, thereby boosting earnings.

Moreover, over the long term, it will generate higher return on equity by lowering capital requirements. This will also boost free cash flow, thereby enhancing shareholder returns. Besides adding to the top line in the form of royalty and rental income, it will allow the company to penetrate the market more quickly. The company targets to monetize 70% of its owned real estate by 2017 to further enhance earnings. It expects 80% of its earnings to come from royalty and rental income.

Wendy's Company (The) Net Income (TTM)

Last Words

Wendy's revenues have been declining over the past few quarters due to reduced number of company-operated restaurants. Though transition to a franchise-based business model is expected to lower the company’s G&A expenses and boost earnings, it may continue to weigh on its revenues.

Zacks Rank & Stocks to Consider

Wendy's carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the restaurant space are Darden Restaurants, Inc. (DRI - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and McDonald's Corporation (MCD - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darden, Domino's and McDonald's 2018 earnings are expected to improve 13.4%, 23.9% and 9.9%, respectively.

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