Wendy's - Do What Tastes Right!

| About: The Wendy's (WEN)

When it comes to the fast food industry, it is often hard for investors to see past the rather huge golden arches of McDonald's (NYSE:MCD), or its sizzling hot Latino sister company, Arcos Dorados (NYSE:ARCO). However, I'm asking you to put on your best pair of sunglasses to avoid being blinded by those arches so you can look through them to a company that deserves your investing attention: Wendy's (NYSE:WEN).

Hot, Juicy… Investment Opportunity

One important metric where Wendy's is outperforming its competitors is on debt. Wendy's has drastically reduced its debt levels over the last four years. Its debt to equity ratio has been hovering just below .8 over that time while McDonald's floats much closer to 1 and Burger King (BKW) suffers from a ratio well over the 2 mark. And many analysts agree that of the major fast food companies, Wendy's stock is the most undervalued of all of them.

Although Burger King was showing strong growth in 2012, it was obviously funding that growth with debt, which could result in volatile earnings fluctuations. Wendy's by comparison, should continue strong on that account. Its price to book value ratio of 0.88 puts it below that magic threshold of 1, what many perceive to be a sure sign of a great investment opportunity. Burger King, by contrast, stands currently at 5.3 while McDonald's sits at a whopping 6.7. The choice, based on these metrics, is clear.

Where's the Beef?

Part of what Wendy's has going for it is its food. People who resist the temptation of the dreaded golden arches to try the food at Wendy's will be very surprised. From its huge, succulent burgers to its tastier-than-ever frosty milkshakes, no one does fast food as good as Wendy's. Back in its early days Wendy's used slogans like "Quality is our recipe" and "We never cut corners." Slogans like that still apply to the company's food. If the company could fix some of the problems with its approach to counter service (one register, long waits), it could conceivably become much more competitive with both McDonald's and Burger King.

Do What Tastes Right

Take a look at the absolute basics: Over the last 6 months, Wendy's stock has increased by 34%. That is nothing short of impressive. Over the same period, McDonald's stock price only rose by 16% and Burger King rose nearly 18%. Dividends with Wendy's are also great, having doubled from $.02 to $.04 back in November of 2012. Granted, that's a far cry from McDonald's, which recently went from $.70 to $.77 per share, but Wendy's yield of 2.77% is not far behind McDonald's 3.03% -- not far at all. Burger King, on the other hand, stands at $.06 per share at a paltry yield of only 1.3%.

You Know When It's Real

Perhaps most telling of all are the earnings forecasts for Wendy's, which analysts agree will range from 18-22% over the next three years. By contrast, the consensus on McDonald's earnings increases range from 6-9%. And for Burger King? I will just say it is less than 5%. Part of what goes along with that is the key retailing metric of full-year comp store sales, which increased at Wendy's during its last fiscal year by 1.6%. McDonald's, however, just experienced its first drop in comp store sales since 2003 in the first quarter of this year, by 8% - not a good sign. Burger King experienced a 3% decline.

It's Not Just Fast Food; It's Fresh Food, Made Fast

Wendy's is well positioned with today's increasingly health-conscious and budget-conscious consumers. In January, it launched a major revamp of its value menu, called the Right Size Right Price Menu, to include 18 different items ranging from $.99 to $1.99. Unlike many quick-food value menus, it is not just made up snack foods - consumers can put together real meals with real value. Consumers wanting alternatives to red meat have seen February's launch in January of a fish sandwich for a limited time - and not just some kind of "mystery fish" concoction, but one made of 100% North Pacific Cod hand-cut fillet. March saw the introduction of the new Flatbread Grilled Chicken sandwiches using artisan five-grain bread with flax seeds, cracked wheat, rolled oats, millet and sesame seeds. And with May being National Salad month, Wendy's is publicizing its own, available in three different sizes and made fresh every day.

Put It All Together and What've You Got? A Hamburger Metaphor!

Wendy's is also undergoing a huge re-imaging and restaurant upgrading effort, and it is this initiative that could rocket the company forward. The locations that underwent the re-imaging process in 2012 saw sales increase by 25%. That's huge. Another 100 locations will go through the process this year, and as many as 600 between now and 2015. If those locations experience similar boosts in sales, Wendy's will be unstoppable. If great returns and potential for growth are on the menu for you, consider adding a healthy dose of Wendy's stock to your portfolio. And stop by for a meal while you're at it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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