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Why Wendy's (WEN) Is Up Today

Tickers in this article: WEN
Update (4:02 p.m. EST): Updated with closing price, day high and low prices, price change and volume information.

NEW YORK (TheStreet) -- Wendy's Co.  rose 6.4% to $8.98 on Monday after the fast-food chain offered investors its 2014 earnings forecast that beat analysts' expectations.

The company hit a high of $9.27 and a low of $8.91 for the day and had a volume of 40,169,641, far greater than its average volume of 6,465,880. Wendy's has a one-year low price of $4.80 and a one-year high price of $9.51.

The Dublin, Ohio-based company projected full-year adjusted earnings of 34 to 36 cents per share, well above the average analyst projection of 29 cents per share. Wendy's also announced that it expects company-owned same-restaurant sales to increase by 2.5% to 3.5% for the full year.

The company also announced a net income of $25.2 million to $28.7 million, or six to seven cents per share, for the fourth quarter that ended on Dec. 29 compared to $26.4 million or seven cents per share in the same period one year earlier. Costs dropped 5% to $568.3 million in the quarter, while total sales fell 6% to $592.4 million.

Wendy's, the second-largest hamburger chain in the U.S., franchised its restaurants, which reduced operating costs and led to the company's positive outlook. The company's long-term makeover has included selling restaurants it owns to franchisees to cut costs. In July, Wendy's said it plans to sell 425 stores by the middle of 2014. The company had either sold or signed letters of intent to sell 384 restaurants through 2013. As of Dec. 29, the company had 6,558 restaurants, including franchisees.

TheStreet Ratings team rates WENDY'S CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate WENDY'S CO (WEN) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, compelling growth in net income, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • WEN's revenue growth has slightly outpaced the industry average of 0.3%. Since the same quarter one year prior, revenues slightly increased by 0.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.77, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, WEN has a quick ratio of 1.63, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 92.6% when compared to the same quarter one year prior, rising from -$26.16 million to -$1.94 million.
  • Net operating cash flow has significantly increased by 94.87% to $109.33 million when compared to the same quarter last year. In addition, WENDY'S CO has also vastly surpassed the industry average cash flow growth rate of -0.48%.
  • Powered by its strong earnings growth of 100.00% and other important driving factors, this stock has surged by 75.36% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.