In an effort to stay relevant with consumers and to keep its smaller competitors from gaining market share, The Wendy’s Co (NASDAQ:WEN) launched an innovative plan to upgrade stores with bistrolike features. It has also expanded its menu with additional premium burgers, making for more variety than McDonald’s Corporation (NYSE:MCD) or Burger King Worldwide Inc (NYSE:BKW). In fact, The Wendy’s Co (NASDAQ:WEN) expects its pretzel bacon cheeseburger — which I think tastes great, by the way — will increase same-store sales as much as 3% by itself.
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| Wendy’s recently made the bold move of reducing company ownership of restaurants from 22% to 15%. This works out to 400 stores sold to franchisees. |
Financially, Wendy’s recently made the bold move of reducing company ownership of restaurants from 22% to 15%. This works out to 400 stores sold to franchisees. By doing this, the company creates increasingly stable revenue based on steady rent payments, franchise fees and royalties rather than sales.
The company just reported solid second-quarter results with adjusted earnings of 8 cents a share, beating analysts’ consensus estimates by 2 cents. Revenue rose 1.8% from a year ago, to $650 million, but missed estimates by $10 million. The miss is attributed to weak same-store sales growth of just 0.3% at franchised restaurants.
Investors are betting that Wendy’s changes will increase sales. On the positive side, the company increased its quarterly dividend by 25% to 5 cents, which equates to a 2.8% annual yield.
My bullish bet is on Wendy’s as the single mega-burger chain to thrive long term due to its willingness to undertake substantial changes to stay relevant. To my thinking, the fearlessness exhibited by the company provides a winning edge against its smaller competitors.
Technically, shares have broken out of a tight channel between $6.20 and $5.50, hitting a high of $7.60 prior to falling back to support in the $7 range.
Risks to Consider: Wendy’s is one of the old-school burger chains, and being bullish on Wendy’s is a bet that fickle consumer tastes will be satisfied with its changes. Always use stops and position size properly when investing.
Action to Take –> I like Wendy’s at support right now with a 12-month target of $10. Stops at $6.60 make solid technical sense.
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– David Goodboy
The article Forget McDonald’s: Get 30% Upside With This Overlooked Burger Stock originally appeared on StreetAuthority and is written by David Goodboy.
David Goodboy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
