The Wendy’s Co (WEN) Rebranding Impresses, but the Stock Value Doesn’t

Valuation

The valuation proposition is where the story gets complex. The stock has already had a large lift even without producing much in the way of bottom-line results. The stock trades at nearly 30 times forward earnings with analysts only forecasting 15% growth per year.

Burger King Worldwide Inc (NYSE:BKW) trades at 22 times forward earnings with earnings forecast to grow at 16% per year. Industry leader McDonald’s Corporation (NYSE:MCD) trades at 16 times forward earnings with roughly 8.5% growth expected.

The only argument investors can make is that The Wendy’s Co (NASDAQ:WEN) will accelerate growth into the refresh in 2014 and beyond. Maybe the same will occur for Burger King, though the sector appears overvalued considering the general lack of volume growth in the sector. Margins can only be improved so much in the group to justify these multiples of forward earnings, especially considering one company will have to take market share from another one.

Bottom line

While the reimage at The Wendy’s Co (NASDAQ:WEN) was long overdue, investors appear ahead of the plan for now. The sector, as well, appears overvalued considering the lack of general growth in volumes and revenue. With the growth potential from the reimaged stores, Wendy’s could be a compelling stock on a pullback in the future. Without a pullback, it is difficult to pay over $6 for a stock expected to only earn around $0.23 per share next year.

The article Wendy’s Rebranding Impresses, but the Stock Value Doesn’t originally appeared on Fool.com and is written by Mark Holder.

Mark Holder has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald’s. The Motley Fool owns shares of McDonald’s. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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