Wendy's Is A Buy
Room To Grow
Without a doubt, there is a lot that is going right when it comes to The Wendy's Company (WEN) and that's why I think the company's stock is currently a buy. This, despite the fact that even in the last twelve months or so the stock has already soared nearly 75%, and is currently trading in the low $9 per share range. Just less than a year ago Wendy's was only trading at $5.
But isn't this a bit risky, Springboard? I mean, how much higher can it go?
Consider one small thing which is actually a big thing in the grander scheme. While the top two quick-serve restaurants in the hamburger arena, McDonald's (MCD) and Burger King (BKW), have been shedding sales and expect to see continued weakness going forward, Wendy's sales have been on a steady clip, and in fact they are expected to beat analysts expectations sharply by around 4 or 5 cents per share when they release 2013 4th quarter earnings. They also beat analyst's expectations in the 3rd quarter as well.
What's more, Wendy's has been hard at work revamping their menu, adding the pretzel bun to their sandwich offerings, and adding the asiago chicken sandwich which has seen rather high interest by their patrons. They have even begun to offer alternative sizing, and alternative pricing on their value-meal options—and this has been a big hit with consumers. All of these changes have meant big bucks for the company.
What makes Wendy's growth, and projected 2014 same store sales growth of around 3% even more attractive, and even impressive to me, is that when you compare overall sandwich prices at Wendy's to it's top competitors, Wendy's certainly comes in as a bit of a premium quick-serve restaurant. The truth is that even with higher priced value-menu items over their competitors, and a still rather weak economy (that still looks a bit bleak going forward) this company is seeing sales growth while McDonald's and Burger King are seeing their sales stagnate or slow.
The long and short of that is that even while consumers are continuing to scale back their spending, they are more than willing to spend more to eat at Wendy's. When you are #3 in the business you are in, and you have an attractive product that consumers want, and a strong leadership team to know and understand and capitalize on setting itself apart from its top competitors, this leaves quite a lot of room to grow your business. And that is exactly what Wendy's is doing.
This is especially true if you take in the broader picture which is the entire quick-serve sector where your top competitors are McDonald's, Kentucky Fried Chicken, a division of Yum! Brands (YUM), and Subway—in a nearly $500 billion global market for quick-serve restaurants, Wendy's is doing quite well to carve out a larger chunk of that business. I see no reason why Wendy's cannot continue to accomplish this.
$275 Million Buyback
For the same reason that you or I may choose to invest in our homes, redoing the kitchen, freshening up the siding, or putting on a new roof, a company will invest in their own business. The fact is that it only makes sense to invest when you think the value of the underlying investment will be worth more in the future.
To that end, Wendy's recently announced that it would buy back its own shares, up to $275 million worth, when the shares are trading between $8.50 per share to $9.25 per share. Wendy's would not be doing this if they thought that the company's stock would not be trading considerably higher sometime in the longer term.
This is just another reason to come to the conclusion that even while this company's stock price has catapulted 75% over the last twelve months, the company still has plenty of room to grow, and that the company's stock will continue to enjoy rather impressive gains over their competitors.
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What About Cash Secured Puts?
In addition to buying shares of The Wendy's Company, I also intend to sell cash secured puts on the stock at price points that are in-the-money. I am willing to do this because (1) I feel that the current stock price is lower than it will be in next twelve months and (2) because I feel that selling these puts at or in-the-money will allow me to add more shares at a reasonable price to future growth and earnings, and I get to enjoy taking home some nice premiums as well. So it is win-win.
Overall I think Wendy's is a strong buy, and I think despite the tremendous couple of years its stock has had, there is still quite a lot of upside that is definitely worth taking full advantage of. The sky is the limit, as they say, and right now I think this stock has a very good opportunity to nearly double in the next 12-18 months.
- Disclaimer: Springboard currently has a long position in WEN, and intends to add shares. At the time of this writing Springboard has no plans to sell any shares in WEN.
By the way, I originally had links to each of the quotes for the stocks I mentioned in this post, but thanks to the blind and idiotic "editorial' staff of this site, they determined that I had multiple links to one site CNBC.COM. Well, not exactly oh fine blind men of HubPages. I had links to the QUOTES of these stocks which I felt was pertinent to the article. One more reason the staff should actually READ the posts rather than have some ignorant algorithm determine something is wrong, or at least allow the author to state the case so a personal decision can be made. So, my apologies in advance. It is not my fault this site likes to make itself irrelevant.
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