Fast-food restaurateur Wendy's International
Sorry to rain on your parade, but it's hard to tell at this point. Wendy's released fourth-quarter and full-year 2006 results on Friday afternoon that clearly illustrated this is a company in transition. During the year, it spun off the wildly successful Tim Horton's
2006 performance at the remaining Wendy's chains was deemed lackluster by most analysts who are awaiting more concrete operational details at the company's analyst investor day taking place today. Right now, the consensus for 2007 earnings is slightly over $1.20 for a forward P/E of about 28.
That sounds higher than it really is, as Wendy's has a solid history of generating way more operating cash flow than it reports in net income. The tricky part is trying to figure out what the free cash flow trends will be going forward, as Wendy's was spending heavily to grow the newer brands it has now decided to get rid of.
The company's current strategic plan is appropriately entitled "Quality-Driven: Wendy's Recipe for Success" and consists of focusing on enhancing profitability at the remaining Wendy's stores and finding ways to grow the mature store base by opening new stores and revitalizing the older ones.
Wendy's is definitely worth a look if its turnaround plans turn out anything like McDonald's successful restructuring. McDonald's spent a couple of futile years acquiring outside brands such as Boston Market, Chipotle Mexican Grill
Wendy's is in the early stages of returning to its roots. And while the jury is still out in deciding if the company has chosen the right path, there's precedent that it has indeed made the correct first steps. In other words, for a turnaround play, head to Wendy's, but look to the great white north with Tim Horton's if it's more exciting sales growth opportunities you're after.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.