Wendy's Rises 49% in 3 Months Amid Coronavirus: Here's Why


Zacks Equity Research

via Yahoo Finance - June 26, 2020


The Wendy's Company WEN is likely to benefit from the strong digital ordering system, menu innovation, international expansion and franchising initiatives. The company is gradually reopening dining rooms after coronavirus-induced shutdowns. Also, its re-imaging of units, which has led to sales improvement over the last few quarters, is gaining momentum.


Shares of Wendy's have gained 48.7%, outperforming the industry’s 18.9% rally in the past three months. Moreover, an upward revision in earnings estimates for 2020 reflects analysts’ optimism in the company’s growth potential. Over the past 60 days, the Zacks Consensus Estimate for 2020 earnings has moved up 39.5% to 53 cents per share.


Factors Driving Growth


Wendy's has implemented several sales-building initiatives that have contributed to the company’s performance over the past few weeks. Recently, it provided an operational update — including same-restaurant sales — for the period ended May 31. Consequently, the company witnessed a meaningful improvement in the business.


As of May 3, same-restaurant sales at U.S., International and global segments were down 14%, 28.3% and 15.3%, respectively. Moreover, by May-end, the metric declined 1.9%, 15.7% and 3.3%, respectively. Quarter to date, same-restaurant sales at U.S., International and global segments were down 8.6%, 22.4% and 9.9%, respectively.


Notably, its increased focus on off-premise services and dining reopenings bode well. At May-end, the company operated 99% of total U.S. restaurants and carried out 81% of international operations. Notably, it intends to accelerate the reopening process in compliance with local and state mandates.


The company is investing in technology-driven initiatives like digital ordering to boost sales. It is also investing in areas like mobile payment, mobile ordering and customer self-order kiosks. On the mobile ordering front, Wendy’s is progressing rapidly to ensure that the facility can unravel additional prospects around convenience through delivery and curbside delivery, plus loyalty. We expect these measures to help the company maintain the trend of positive comps going forward.


Wendy’s is also benefiting from its transition to a franchised business model. Though the reduction in ownership has been weighing on revenues over the last few quarters, we believe franchising a large chunk of its system will lower Wendy’s general and administrative expenses, and thereby boost earnings.


Moving forward, the company plans to...