Wendy's Needs a New Recipe to Draw Growth-Hungry Investors
Shares are currently trading at around $8 per share and are down nearly 7% for the year to date, trailing McDonald's
Outside of Chipotle Mexican Grill
In the case of Wendy's, which reported earnings earlier Thursday, management is looking for ways to create shareholder value while reducing exposure and risk.
During the conference call, Emil Brolick, Wendy's CEO, said the company plans to sell all of its company-owned stores (135 locations) in Canada to franchisees. Brolick sees this as a way to reduce operating expenses and increase the company's cash flow.
While it's not yet reflected in the stock price, Brolick has done a good job of getting Wendy's back on its feet. My problem, however, is that Wendy's has been in this perpetual restructuring mode for some time.
Despite the stock's year-to-date underperformance, the shares, which are trading at a P/E of 36, are still not cheap. While this matches the valuation of rival Burger King
Also, even if Wendy's cash flow and operating expenses do improve as Brolick suggests, there is no guarantee that Wendy's will ever outperform. Consider, both McDonald's and Yum! have had their struggles over the past couple of quarters with declining traffic. There has been no evidence that this traffic has detoured to Wendy's.