Wendy’s
The Wendy’s Co (NASDAQ:WEN) saw a 1% quarter-over-quarter increase in corporate same-store sales for the first quarter of 2013, which compared favorably to the McDonald’s Corporation (NYSE:MCD) global same-store sales decrease of roughly 1% and the Burger King Worldwide Inc (NYSE:BKW) corporate same-store sales decrease of 2%.
Management’s first quarter 2013 earnings call raised company adjusted earnings per share (EPS) guidance to $.20 to $.22 for 2013, which would be an increase from the 2012 EPS of $.17 per share. Management’s guidance would indicate a forward price to earnings (P/E) ratio of between 27 and 30, assuming a stock price of around $6. That seems a little pricey for a company that has seen flat-to-declining revenue historically ($3.4 billion in 2010 declined to $2.4 billion in 2011, with a rise to $2.5 billion for the trailing twelve months, according to Morningstar).
The new dividend of $0.04 per share is a good sign that management is serious about returning value to shareholders, but given the high payout ratio — 72% assuming annual EPS clocks in at $0.22 — it may not be sustainable. Then again, the dividend may also be a sign that management feels very bullish about the company’s long-term outlook and may have a good reason to think that EPS will steadily increase and reduce the payout ratio.
Personally, I don’t buy it. The stock is too pricey given past performance, and the dividend is suspect. If it grows revenue and the dividend for a couple of years, the stock should be reconsidered, but for a value stock I wouldn’t pay 30 times forward earnings.
Burger King
The first thing that leaps out to me about Burger King Worldwide Inc (NYSE:BKW) is its debt to equity ratio, which is 2.5 according to Morningstar. When compared to McDonald’s 0.8 and The Wendy’s Co (NASDAQ:WEN) 0.7, it’s a big red flag. The Wendy’s Co (NASDAQ:WEN) and McDonald’s have an easier ability to expand through additional debt but Burger King Worldwide Inc (NYSE:BKW) is already pretty leveraged. The aforementioned drop in same-store sales is also concerning. On the revenue front, the chain is definitely healthier, with adjusted EPS of $.17 for the first quarter of 2013 ($.10 per share according to EPS calculated according to generally accepted accounting practices, or GAAP). According to NASDAQ, the consensus EPS forecast is $0.81 for 2013, which works out to a forward P/E of approximately 25, assuming a share price of $20.
Management announced a dividend hike to $.06 per share and a $200 million share repurchase program during the first quarter earnings call, which shows optimism regarding the stock. The dividend’s payout ratio is under 50%, so I would not be surprised to see it rise further — especially given that the dividend is up 50% since the fourth quarter of 2012.