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Wendy's: 17% Upside, Definitely Worth Considering

Summary

The adjusted earnings per share of $0.09 increased 28.6% year-over-year and 12.5% ahead of consensus estimate of $0.08 in earnings per share.

The sales value of fast food industry is expected to grow at a CAGR of 3% to reach $246.6 billion by 2019.

At a target price of $12.0, Wendy’s offers an upside potential of 17% and a dividend yield of 2.40%.

The fast food industry is still growing though the pace has slowed down in the recent years. While the sandwich category remains soft, the bar is still rising for the burger category. Last year, the ordered burger servings rose 3% to 9 billion at the U.S. restaurants and foodservice outlets. Despite a healthy trend, intensely competitive and mature fast food industry itself is one the biggest hurdles for the fast food chains to accelerate meaningful growth.

The new and comparatively small fast food chains with the more flexible and innovative products are stealing the market from the bigger player, or at least negatively impacting the growth momentum. However, Wendy's (NASDAQ:WEN), the third-largest burger chain, is putting its efforts to strengthen the brand name. The new and improved menu and global expansion are Wendy's strategy to accelerate a satisfactory long-term revenue and earnings growth.

Revenue Down, Earnings Up

The management of Wendy's has taken a couple of very smart initiatives to accelerate profitable growth and has started realizing the benefits. The company's image activation reimaging program had a positive impact on restaurant traffic during the third quarter of 2015, and thus Wendy's surpassed the revenue and earnings estimates. While consensus expected $442 million, Wendy's generated $464.6 million in revenue down 6.5% due to the absence of 153 company-owned restaurants. The adjusted earnings per share of $0.09 increased 28.6% year-over-year and 12.5% ahead of...


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