Wendy’s (NASDAQ:WEN) stock has underperformed the market, but the stock has a lot of potential, starting with its 5.2% dividend yield. Contrarian investors will find that there’s quite a bit to like here. I’m bullish on the $3.9 billion fast food stock, given its juicy dividend yield, its relatively inexpensive valuation compared to its restaurant stock peers, and several catalysts that could lead to a turnaround, such as a new CEO taking over and new involvement from activist investors who could push for further changes.
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New CEO, New Activist Investors
Wendy’s stock has slumped to a 14.0% loss over the past year, at a time when the S&P 500 (SPX) surged to a 21.8% gain, so some changes are likely needed, and changes are coming.
Wendy’s recently announced that a new CEO, Kirk Tanner, will take the helm on February 5. Tanner has been at Pepsi (NASDAQ:PEP) for over 30 years and is currently leading the company’s massive North American beverage business. While it’s too early to say what Tanner’s strategy will be, he appears to have the right kind of background for this role, and a fresh start under a new CEO could help to reinvigorate the business and the stock price.
There’s certainly precedent for this in the restaurant industry. For example, former Taco Bell CEO Brian Niccol took over as Chipotle (NYSE:CMG) CEO in 2018 and has created tremendous value for shareholders in that time. Chipotle’s stock price has more than tripled since he took over. I’m not saying that this move by Wendy’s will necessarily have the same level of impact, but the example shows that a change in leadership can be a catalyst for stocks in this industry.
In terms of other potential catalysts (or wildcards), Wendy’s is also facing renewed pressure from activist investors, which could benefit shareholders.
While legendary investor Nelson Peltz (who is now Wendy’s Chairman of the Board) dropped his efforts to take the company private, a new activist is engaging in saber-rattling of its own. In December, Reuters reported that Blackwells Capital, an activist hedge fund, has plans to challenge Wendy’s Board of Directors (namely Peltz) and to push for various improvements, although it’s unclear what they are at this time.
It’s too early to say what the dynamic between the new CEO, Peltz, and the new activists will be, but with all of these new elements in play, more changes are likely on the horizon.
Tasty Dividend
What I really like about Wendy’s stock is that it packs a punch with its dividend. Shares of Wendy’s currently yield an attractive 5.2%.
This yield is well above that of the average yield for the S&P 500 (SPX), which currently sits at 1.5%.
Not only that, but Wendy’s also yields significantly more than its closest peers like McDonald’s (NYSE:MCD) and Restaurant Brands International (NYSE:QSR) (TSE:QSR), the parent company of Burger King, which yield 2.1% and 2.8%, respectively. Wendy’s yield is also significantly higher than that of Taco Bell parent Yum! Brands (NYSE:YUM), which currently yields just 1.9%.
Wendy’s doubled its dividend payout in 2023 (from $0.125 per quarter to $0.25), a strong signal that it is committed to creating value for its shareholders. In addition to this big-time dividend, Wendy’s is also returning capital to shareholders via share repurchases. In 2023, Wendy’s committed to buying back $500 million worth of shares through 2027, a significant amount for a company with a $3.9 billion market cap.
Cheaper Than the Market and Fast Food Peers
Trading at 19.3 times earnings and 17.3 times projected 2024 earnings, shares of Wendy’s aren’t so cheap that value investors are going to be pounding the table over it, but they are cheaper than the broader market and those of its closest peers.
The S&P 500 currently trades at 22.1 times earnings. McDonald’s trades at 24.7 times trailing earnings and 23.3 times forward earnings. Meanwhile, Restaurant Brands International trades at 23.7 times trailing earnings and 22.4 times forward earnings. Similarly, YUM! Brands trades at 24.3 times trailing earnings and 22.2 times forward earnings.
These comparisons illustrate that there is plenty of room for Wendy’s to attain a higher multiple in line with its restaurant peers and for shares to trade higher if the new management team can right the ship.
Is WEN Stock a Buy, According to Analysts?
Turning to Wall Street, WEN earns a Hold consensus rating based on three Buys, 11 Holds, and zero Sell ratings assigned in the past three months. The average WEN stock price target of $21.73 implies 13.9% upside potential.
The Takeaway: Wendy’s Stock Looks Attractive
Shares of Wendy’s look attractive based on its 5.2% dividend yield and the possibility that changes driven by its new CEO or by activist investors could help bring its valuation more in line with those of its peers.
