I’ll Take A Dividend, Fries, And A Shake

I’ll Take A Dividend, Fries, And A Shake 

As the world grinds back to normal, travel, food, and leisure business are set to see a bump in demand. 

It’s uncertain about whether inflation will get out of control, or if the economy will falter, people will still need to eat. 

Lately, we’ve seen interest in fast food and casual dining restaurants as consumers look for ways to spend on simple luxuries without breaking the bank.

McDonald’s (MCD) always tops the list, especially with its store shutdowns in Russia.

But one brand made famous by Dave Thomas’ daughter caught our attention.

Wendys Company (WEN) is a staple of Columbus, Ohio, known as the fast food capital of the world (it’s home to several chains including Whitecastle).

If there is an economic slowdown, the fast-food sector might actually thrive. 

Traditionally, Wendys has boasted a stellar supply chain. But will that hold up in the age of inflation?

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Wendys Business

WEN is a fast-food chain company with three segments including Wendy’s US, Wendy’s International, and Global Real Estate & Development. 

The company operates approximately 361 firm-operated restaurants, over 5,500 franchised restaurants in the US, and nearly 1,000 restaurants internationally. Furthermore, the company owns and leases real estate properties. It owns more than 500 and leases over 1200 properties, which are leased or subleased primarily to franchises.  

Below is a breakdown of The Wendy’s Company revenues from 2015 to 2021

The company’s economic model focuses on three pillars: fast food done right, operational excellence, and good done right.

Within this framework, Wendys is expanding breakfast, accelerating digital, and expanding its footprint.

In 2008, the company consolidated with Arbys only to part ways 3 years later.

Financials

Investors will like the fact that WEN has increased its revenues for four years straight. 

Furthermore, the company has experienced 11 consecutive years of global same-restaurant sales growth. 

However, one could argue that WEN is not growing fast enough. For example, its revenue growth (YoY) is 7.6%, which is significantly less than the sector median of 26.07%

WEN has a free cash flow of $268M. In addition, its operating cash flow stands at $346M, which is the highest its been in over a decade. 

WEN has a current ratio of 1.39x. Its highly liquid assets are 1.39x greater than its short-term liabilities. It has a quick ratio of 0.86x, which means its highly liquid assets are 0.86X greater than its short-term liabilities. 

The company has a debt-to-equity ratio of 8.64, which is a number that could scare away some investors. However, it hasn’t stopped the firm from issuing a dividend, which stands at $0.48 per share annually or 2.71% 

Wendys’ capital structure is as follows: total debt of $3.68B and cash upwards of $249M. And a market cap of approximately $4.2B

Valuation

WEN has a price-to-sales ratio of 2.82X, which is not as good as the sector median of 0.99X. 

The firm has a P/E Non-GAAP of 23.44, which is high when compared to the sector median of 11.55

WEN has a gross profit margin of 47.79% which is higher than Shake Shack (SHAK) 33.4% and PapaJohns (PZZA) 31.70% However, it does not beat McDonald’s (MCD) which has a gross profit margin of 54.5%

Now, when you examine the firm’s operating earrings over operating sales (EBIT Margin), you’ll see that WEN is at 22%, which is better than SHAK -1.9% and PZZA at 8.77%

Our Opinion – 7/10

Shares of WEN have been considered steady growth over the last decade. Buy the dip investors have been rewarded handsomely. 

Currently, shares are down nearly 20% YTD. And although the space is competitive, we believe it’s one of the better stocks in it and offers a good dividend yield. 

If the economy is to slip up, we believe that WEN will still be okay. And that’s why we like it here at these levels. 

However, the one thing that would make this stock more attractive is a better growth plan.