Shares of quick-service fast-food restaurants chain The Wendy’s Co. (NASDAQ: WEN) have gained 6.6% over the past year, 34.1% in the past three years and 76.7% over the past five years.
The company has been riding high on the success of its breakfast menu, new product launches, digital initiatives, and international expansion.
Ohio-based Wendy’s offers hamburgers, chicken breast sandwiches, chicken nuggets, chili and baked potatoes, French fries, salads, soft drinks, milk, coffee, frosty desserts and kid’s meals.
It is the second-largest hamburger restaurant chain in the U.S. and the third-largest quick-service restaurant company in the world. Apart from the U.S., Wendy’s has franchises in Canada, Latin America, the Middle East, northern Africa, Singapore, Russia, and the Caribbean.
At the end of last year, the company had nearly 7,000 franchises and company-operated restaurants across the world.
Recently, Tigress Financial analyst Ivan Feinseth provided insight into the company’s operations and future growth plans. He said, “New menu items and breakfast expansion, franchised restaurant growth, and increasing investments in new technology and digital initiatives will continue to drive accelerating Business Performance trends.”
What Has Wendy’s Been Up To?
Wendy’s launched its breakfast menu two years ago. The menu has been “extremely successful” and Feinseth anticipates breakfast sales to grow by 30% this year and account for 10% of the company’s total sales by the end of 2022.
Further, the company launched its breakfast menu in Canada recently. This morning menu includes different types of breakfast items, does not require franchise owners to invest in new equipment, requires only three people on average to make these dishes, and most of the items can simply be picked up and eaten.
According to Feinseth, even though breakfast is a competitive category, it offers a huge growth opportunity for quick-service restaurants that mostly serve lunch and dinner.
The analyst said, “WEN’s successful breakfast launch will continue to be a significant growth driver, helped further by new menu items and international expansion.”
On the expansion front, Wendy’s has teamed up with Miami-based ghost kitchen startup Reef Technology to open 700 ghost kitchen-based, delivery-only service providers in the U.S., Canada and the U.K. by 2025.
The company expects to record incremental annual sales of $500,000 to $1 million per ghost kitchen on average. The collaboration is also likely to help Wendy’s identify which new products are in demand.
Additionally, Wendy’s is enhancing the guest experience with a restaurant reimaging program. The company has already remodeled a few restaurants with bold and innovative designs, which is attracting an increased number of customers, Feinseth added.
2021 Results and 2022 Projections
On March 1, Wendy’s announced its financial results for the fourth quarter and full-year 2021.
Total revenues increased 9.4% year-over-year to $1.9 billion. The analyst expects revenues to grow over 12% year-over-year to $2.13 billion in 2022.
Net operating profit rose 25.7% to $286.7 million and is forecast to rise 12.1% to $321.5 million over the next 12 months (NTM).
Return on Capital (ROC) jumped from 4.06% in 2020 to 5.23% in 2021, and Feinseth projects it to reach 5.71% in 2022. Economic Profit (EP) increased 85.4% year-over-year to $128.2 million. The analyst expects EP to rise 19.7% to $153.4 million this year.
“Accelerating same-store sales growth combined with increasing returns from ongoing capital investments, including store upgrades and digital initiatives, continues to drive an acceleration in RoC and growth in EP, producing greater shareholder value creation,” Feinseth said.
Price Target
Overall, the stock has a Moderate Buy consensus rating based on eight Buys, five Holds and one Sell. The average WEN price target of $26.81 implies 24.7% upside potential.
Blogger Opinions
TipRanks data shows that financial blogger opinions are 88% Bullish on Wendy’s, compared to the sector average of 67%.
Risk Analysis
According to the TipRanks Risk Factors tool, Wendy’s top risk category is Ability to Sell, contributing eight of the total 36 risks identified for the stock.
However, in its recent report, the company has changed three key risk factors under the Macro & Political category. Compared to a sector average of four Macro & Political risk factors, WEN has five.
In the wake of the Russia-Ukraine crisis, Wendy’s highlighted that its operations and financial conditions could be significantly impacted as a result of the adverse global and national economic conditions.
Further, the company is concerned about the profitability of its international operations due to uncertainties and risks surrounding its business outside the U.S. as a result of the invasion.
Conclusion
Wendy’s is doing all the right things to continue on its growth trajectory. However, the conflict between Russia and Ukraine is a cause of concern, as the sanctions imposed by the U.S. government on Russia is forcing U.S. companies to shutter operations in the world’s largest nation.
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