Wendy's: Analyst Considers Possible Sale, Dividend

Despite the challenges posed by turbulence in the credit markets, Wendy’s International Inc. (WEN) continues to pursue a sale. But what is the hamburger chain worth?

The shares closed at US$31.27 on Wednesday after trading close to US$35 at the end of October. But Citigroup analyst Glen Petraglia thinks Wendy’s could fall towards US$30.50 in a best case scenario if it does not do a deal. Being more conservative, that number falls to between US$27 and US$28.

“Absent a sale, Wendy’s options for cash are somewhat limited,” he told clients in a note, adding that its share buybacks are capped at 4 million shares until 2008. However, the company could raise cash by refranchising or through a debt offering that could support a dividend or the remodeling of units.

If Wendy’s levers up to 3 to 3.5 times EBITDA by offering as much as US$385-million of cash, Mr. Petraglia estimates this could support a dividend near US$5 per share. However, he thinks they’ll likely keep some cash available.

The analyst continues to believe Wendy’s will complete a sale. He maintained his “hold” rating, but shaved US$2 off his price target, which is now US$35, due to expectations that the company will sell at a lower multiple than previously thought.

WEN 1-yr chart: