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Wendy's Selloff Is A Blessing In Disguise

Mar. 03, 2020 10:28 AM ETThe Wendy's Company (WEN)8 Comments


  • Wendy's stock price has been selling-off along with the market in general.
  • At this point, the stock is down 15% year-to-date while long-term prospects continue to be good.
  • The company is expecting high sales and recovering earnings growth as its core business and growth initiatives are increasingly supporting the bottom line.

It is time to revisit my bullish Wendy's (NASDAQ:WEN) call after the stock dropped 21% in the week of its fourth-quarter earnings release. Everything started well as the stock quickly rallied to $24 after which the stock dropped along with the market. While I am writing this, the stock is down almost 15% since the start of the year as investors are selling everything - especially stocks that get hurt when consumer spending drops. Nonetheless, as the company is showing accelerating fundamentals, I continue to believe the company will be a solid long-term buy. In this case, think the stock market correction offers an incredible chance to buy Wendy's at a good price.

Image result for the wendy

Source: The Wendy's Company

Here's What Happened In Q4

We delivered a very strong year of sales growth and have laid the foundation in 2019 to set the Wendy’s® brand up for future success.

- President & CEO Todd Penegor

This sentence from President and CEO Todd Penegor is a short but good summary of the fourth quarter where strength started all the way at the top. The company saw systemwide sales growth of 5.7% in North America and 9.8% international. When combining both, the global sales growth rate hits 5.9%. On a full-year basis, global sales are up 2.8% as total sales have accelerated towards the end of the fiscal year.

Moreover, and this number is even more important, North American same-store restaurant sales (hereafter referred to as 'comps') were up 4.3%. This is 410 basis points higher compared to the 0.2% growth rate in the last quarter of the 2018 fiscal year.

Unfortunately, the company-operated restaurant margin fell by 170 basis points to 14.3%. A mix of higher labor expenses, higher insurance costs, commodity inflation, and a lower customer count were more than offsetting better pricing and mix. This also

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Comments (8)

catsaunders financial profile picture
I have been investing in WEN since Dave's Daze (Dave Thomas - Founder of Wendys) Get the book he wrote, read it, then read it again. He was exec vp of KFC for the Colonel and learned all the tricks there.............Below $20 WEN is a steal, the damn real estate the units sit on is worth more than that. Take it to the bank, $25
Soggycyclist profile picture
"Fast Food' -v- "Hard Times" talk soon?.... I think this is a watchlist stock. Resume the trend and weather the current storm. Q over Q will determine logical entry. IMHO
amegalo profile picture
You can still be a patron of a fast food provider.. just use the drive up window . The recent virus scare will not affect you. I’m long WEN for many years and when it pays 2% or higher in dividend payout it is usually at an attractive price to purchase the stock.
For now. When times get tough dividends get suspended
FFOO: I'm with you - I don't see value here - but a lot of risk.
TooEasy profile picture
Corona virus is germ warfare, not a natural event to take Trump down, this too shall pass just like the BS SARS and the chicken virus, Wendy’s breakfast is getting rave reviews on You Tube.

Thanks for the article. I think Wendy's is well positioned in the fast food market and will continue to grow. Consumer sentiment among the Wendy's brand seems to be strong as well. I am close to starting a position here where I missed it last time.
What about the possible huge reduction in foot traffic in the next few weeks due to containment and the fact that management did not guide lower after a virus has been raging for 2 months. What about 390+ stores managed by a company that is struggling to stay out of chapter 11 with rumors of not paying royalties to pizza hut brand. What about the leverage of debt? Do you think more buybacks are likely or will they shore up or have to use that cash to continue operations?? I hope I am wrong on some level but this seems like a weak brand with a shaky foundation that has to weather an ENORMOUS storm.
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