Why Investors Are Confident about Wendy’s ahead of 3Q16 Earnings



Wendy’s stock performance

Wendy’s (WEN) is all set to announce its 3Q16 results on November 9, 2016, before the markets open.

Since the announcement of its 2Q16 results on August 10, 2016, Wendy’s share price has risen 6%. The company posted adjusted EPS (earnings per share) of $0.11 on revenue of $382.7 million. Analysts were expecting revenues of $367 million and EPS of $0.09. Although the company beat analysts’ estimates, the lower-than-expected same-store sales growth led to a decline in Wendy’s share price. The company management blamed the widening gap between the cost of eating at home and the cost of dining out for lower-than-expected same-store sales growth.

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However, the initiatives company management has taken such as steps to improve the quality of the food being served at its restaurants, reimaging of restaurants, menu innovations, and an increase in analysts’ EPS estimates for the next four quarters increased investor confidence, leading to a rise in Wendy’s share price in the second half of 3Q16.

Year-to-date performance

In 2015, the company delivered returns of 19.3%. However, 2016 has been a tough year for Wendy’s Company (WEN) with the company returning 1.2% year-to-date. During the same period, its peers McDonald’s (MCD), Jack in the Box (JACK), and Restaurant Brands International (QSR) have returned -5%, 25.2%, and 25.5%, respectively.

The broader comparative index, the iShares U.S. Consumer Services ETF (IYC), has returned -0.5% since the beginning of 2016. IYC invests 11.3% of its holdings in restaurant and travel companies.

Series overview

With Wendy’s 3Q16 results just around the corner, this pre-earnings series will focus on what to expect in the earnings release. The series will cover analyst estimates for the company’s revenue, EBIT (earnings before interest and tax) margins, and EPS. We’ll wrap up by looking at the company’s valuation multiple and anticipated stock price over the next 12 months.

Let’s start by analyzing Wendy’s 3Q16 revenue expectations.


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