Shares of quick-service restaurant chain The Wendy’s Co. (NASDAQ: WEN) grew 6.6% over the past year, 34.1% over the past three years, and 76.7% over the past five years.
The company has benefited from the success of its breakfast menu, new product launches, digital initiatives and international expansion.
Wendy’s, based in Ohio, offers burgers, chicken breast sandwiches, chicken nuggets, chili and baked potatoes, fries, salads, soft drinks, milk, coffee , frozen desserts and children’s meals.
It is the second largest hamburger restaurant chain in the United States and the third largest fast food company in the world. In addition to the United States, Wendy’s has franchises in Canada, Latin America, the Middle East, North Africa, Singapore, Russia and the Caribbean.
At the end of last year, the company had nearly 7,000 franchises and company-operated restaurants around the world.
Recently, Tigress Financial analyst Ivan Feinseth provided insight into the company’s operations and future growth plans. He said: “New menu items and breakfast expansion, franchise restaurant growth and increased investment in new technology and digital initiatives will continue to drive accelerating business performance trends. .”
What did Wendy do?
Wendy’s launched its breakfast menu two years ago. The menu has been “extremely successful” and Feinseth expects breakfast sales to grow 30% this year and account for 10% of total company sales by the end of 2022.
Additionally, the company recently launched its breakfast menu in Canada. This morning menu includes different types of breakfast items, does not require franchisees to invest in new equipment, only requires an average of three people to prepare these dishes, and most items can simply be picked up and eaten.
According to Feinseth, while breakfast is a competitive category, it offers a huge growth opportunity for quick-service restaurants that primarily serve lunch and dinner.
The analyst said, “WEN’s successful breakfast launch will continue to be an important growth driver, further aided by new menu items and international expansion.”
On the expansion front, Wendy’s has partnered with Miami-based ghost kitchen start-up Reef Technology to open 700 ghost kitchen-based delivery-only service providers in the US, Canada and the UK. United by 2025.
The company expects to see additional annual sales of $500,000 to $1 million per shadow kitchen on average. The collaboration is also likely to help Wendy’s identify new in-demand products.
Additionally, Wendy’s is enhancing the customer experience with a restaurant reimagining program. The company has already remodeled a few restaurants with bold and innovative designs, which are attracting growing numbers of customers, Feinseth added.
2021 results and 2022 projections
On March 1, Wendy’s announced its financial results for the fourth quarter and full year 2021.
Total revenue increased 9.4% year over year to $1.9 billion. The analyst expects revenue to grow more than 12% year-over-year to $2.13 billion in 2022.
Net operating income increased 25.7% to $286.7 million and is expected to increase 12.1% to $321.5 million over the next 12 months (NTM).
Return on capital (ROC) increased from 4.06% in 2020 to 5.23% in 2021, and Feinseth forecasts it will reach 5.71% in 2022. Economic profit (EP) increased by 85.4 % year over year to reach $128.2 million. The analyst expects EP to rise 19.7% to $153.4 million this year.
“Accelerating same-store sales growth combined with increasing returns from ongoing capital investments, including store upgrades and digital initiatives, continues to drive RoC acceleration and growth of PE, producing greater value creation for shareholders,” said Feinseth.
Overall, the stock has a moderate buy consensus rating based on eight buys, five holds and one sell. The average WEN price target of $26.81 implies an upside potential of 24.7%.
Reviews of bloggers
Data from TipRanks shows that financial bloggers’ views are 88% bullish on Wendy’s, compared to the industry average of 67%.
According to the TipRanks Risk Factors tool, Wendy’s top risk category is selling ability, contributing to eight of the 36 risks identified for the stock.
However, in its recent report, the company changed three key risk factors in the macro and political category. Compared to an industry average of four macro and political risk factors, WEN has five.
In the wake of the Russia-Ukraine crisis, Wendy’s stressed that its operations and financial conditions could be significantly affected due to adverse global and domestic economic conditions.
Additionally, the company is concerned about the profitability of its international operations due to the uncertainties and risks surrounding its business outside the United States following the invasion.
Wendy’s is doing whatever it takes to continue its growth trajectory. However, the conflict between Russia and Ukraine is a cause for concern as US government sanctions on Russia are forcing US companies to shut down their operations in the world’s largest country.
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