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4 Reasons Why Wendy's (WEN) Stock Looks Attractive

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The Wendy's Company WEN has been benefiting from menu innovation, focus on breakfast offerings, robust comps growth, technological upgrades and international expansion. This is evident from the company’s share price movement. The stock has surged 14.7% in the past six months, compared with the industry’s rally of 12.9%.

Earnings estimates for full-year fiscal 2021 have moved up 9.5% in the past 30 days. This positive trend highlights bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Aiding the Performance

Breakfast Offerings to Drive Improvement

Wendy’s continues to focus on Breakfast daypart offerings to drive incremental sales. Ever since its launch on Mar 2, 2020 across the United States, the model has contributed 6.2%, 6.4% and 6.3% to U.S. systemwide same-restaurant sales during the fiscal second, third and fourth quarter of fiscal 2020, respectively. In the fiscal fourth quarter, breakfast remained solid at approximately 7% of sales. In first-quarter fiscal 2021, breakfast accounted for nearly 7% of sales. It also contributed significantly to restaurant average unit volumes (or AUV). During the fiscal second quarter, breakfast sales improved 10% on a sequential basis.

Going forward, the company remains bullish on this business model with plans to boost breakfast daypart sales by 30% in 2021. To this end, it has set aside $25 million to support the models marketing and advertising initiatives. For 2022, it anticipates breakfast sales contribution of 10%.

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Global Comps Growth

The company continues to impress investors with robust global same-restaurant sales growth. After posting global same-restaurant sales growth of 4.3% and 4.7% in third and fourth-quarter 2020, respectively, the company reported global restaurants comps sales improvement of 13% in first-quarter fiscal 2021. During the fiscal second quarter, comps at Global restaurants increased 17.4% year over year against 5.8% decline reported in the prior-year quarter. The improvement was driven by continued strength across its U.S. and international businesses. During second-quarter fiscal 2021, comps in the United States witnessed growth of 16.1% year over year against 4.4% decline reported in the prior-year quarter.

Comps growth was backed by improvement in breakfast and digital businesses. Same-restaurant sales at international restaurants (excluding Venezuela and Argentina) rose 31.4% year over year against 18.4% decline reported in the year-ago quarter. The segment’s comps rose 13% from 2019 levels. Robust performance of the Canadian markets benefited the company. For 2021, the company anticipates global system-wide sales growth in the range of 11-13%, compared with the prior estimate of 8-10%.

Margin Expansion Bodes Well

Margin, an important financial metric that gives an indication about the company’s health, has accelerated in second-quarter fiscal 2021. During the fiscal second quarter, company-operated restaurant margin came in at 20.3% compared with 14.4% in the year-ago quarter. The upside was primarily driven by increased customer counts and higher average check. This was, however, partially offset by rise in labor rate and commodity costs. In 2021, company-operated restaurant margin is expected to be 17-18% owing to increase in sales outlook.

Digitalization Acting as a Key Catalyst

Wendy’s has been capitalizing on the benefits of technology. It is investing in areas like mobile payment, mobile ordering and customer self-order kiosks that provide benefits such as consumer convenience, increased customer count, higher check and faster speed of service. For the six months ended Jul 4, 2021, the company had nearly 7.5% of its sales coming through digital channels in the United States. This was aided by gains in delivery and mobile ordering sales, and several successful promotions. Ever since, the company launched Wendy's Rewards program app downloads have increased. It has been witnessing higher average checks as well. During the fiscal second quarter, Wendy's witnessed a rise in total loyalty program members (by 25%) to 17 million compared with 13 million in the previous quarter.

Other Key Picks

Some other top-ranked stocks in the same space include Brinker International, Inc. EAT, The Papa John's International, Inc. PZZA and Yum! Brands, Inc. YUM, each sporting a Zacks Rank #2.

Brinker’s earnings for fiscal 2021 are expected to surge 84.2%.

Papa John's and Yum! Brands’ earnings for 2021 are anticipated to increase 122.9% and 22.4%, respectively.


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The Wendys Company (WEN) : Free Stock Analysis Report

Papa Johns International, Inc. (PZZA) : Free Stock Analysis Report

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