Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of The Wendy's Company Jumped 19% in 2015

By Jeremy Bowman - Jan 6, 2016 at 3:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The burger chain bounced on excitement for its plan to refranchise stores and buy back shares.

What: Shares of The Wendy's Company (WEN -1.75%) kept their positive momentum through 2015, finishing up 19% according to data from S&P Capital IQ. As the chart below shows, the gain was not a steady one, but a rally toward the end of the year ensured gains for shareholders.

WEN Chart

WEN data by YCharts.

So what: Riding a wave that lifted other legacy fast-food giants including McDonald's Corp. and Burger King, now owned by Restaurant Brands International, Wendy's delivered steady comparable-sales growth throughout the year, continued its comeback, and had investors applauding its refranchising plans.

Wendy's shares jumped out of the gate as weakness from McDonald's, lower oil prices, and optimism about its fourth-quarter earnings report seemed to buoy stock, with shares finishing up 17% in January.  The rally culminated in a 9% gain on Feb. 3 as the company delivered an adjusted profit of $0.10 a share, meeting estimates while revenue came up short. However, investors sent the stock soaring on news that the company planned to sell another 500 restaurants, fitting with its plans to lower its costs and free up capital. Its previously announced goal is to own just 5% of its restaurants by the middle of 2016.

The stock got another boost following its first-quarter earnings report as company-operated restaurant margin improved 160 basis points to 14.7% and it said it would sell its bakery operations in the second quarter. Finally, management projected earnings-per-share growth in the high single digits in 2016 and 2017 and growth in the mid to high teens in 2018.  

In June, Wendy's wowed investors once again with a promise buyback $1.4 billion worth of its shares by the end of 2016, or the equivalent of one-third of its market cap. Shares began slipping at the end of June after the company completed its tender offer, buying back 66.5 million shares. After falling to below $9, its 2014 closing price, the stock rallied at the end of the year with the help of a solid third-quarter earnings report. 

Now what: Wendy's shares remain highly priced, carrying a price-to-earnings ratio above 30. Though investors are enthusiastic about the buyback program and refranchising plan, this is ultimately a low-growth stock, and the price may have become divorced from the underlying business. Management same-store sales growth of 2.5%-3% over the coming years, and analysts project only a modest improvement in EPS for 2016. Considering that, promises of EPS growth in the mid to high teens may be hard to deliver on.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Wendy's Company Stock Quote
The Wendy's Company
$20.74 (-1.75%) $0.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.