Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Wendy’s – A bargain?

|Includes:The Wendy's Company (WEN) — in 2008, Wendy’s merged with Triarc in a $2.28bn deal that was supposed to bring a lot synergies and cost reductions.  Now here we are with the Arby’s franchise dragging the stock lower.  Arby’s revenues have declined 17% since the incision and little to none synergies were enjoyed.  Both companies have separate headquarters and the cost reduction in SG&A has not happened.  WEN is lagging behind with the lowest margins in the industry and that is mainly due to the lack of performance in Arby’s.

Recently Management has come upfront with their decision to sell or divest the Arby’s franchise.  That will most likely happen as management is pressured by shareholders who will greatly benefit from the divestiture.  The stock ran up 7% when management explicitly said it is pursuing buyers for Arby’s in their latest Conference Call.  When that happens, shareholders will receive income from the sale in the form of reduction in debt or a per/share payout.  In addition, WEN will be left with a profitable business line that will generate around $207mm in operating profits and thus, making its valuation very attractive.  Management predicts a 15-20% growth in EBITDA in next years, but even if we use a 5% growth and a 15% WACC, we end up with a company value at over $3bn, or $7.17/share.

WEN is without a doubt a BUY now at 4.91 for the reasons described above.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Stocks: WEN