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Why Are Investors Confident of Wendy’s ahead of Its 4Q16 Earnings?

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Feb. 10 2017, Published 4:26 p.m. ET

Wendy’s stock performance

Wendy’s (WEN), a fast-food restaurant chain based in Dublin, Ohio, is all set to announce its 4Q16 results on February 16, 2017, before the markets open.

In 3Q16, the company posted EPS (earnings per share) of $0.11 on revenues of $364.0 million. Analysts were expecting the company to post EPS of 0.10 on revenues of $349.4 million. After posting strong 3Q16 earnings, the company increased its 2016 guidance to be in the range of $0.40–$0.41 from the earlier guidance of $0.39–$0.40.

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The better-than-expected 3Q16 earnings and the management’s raising of the 2016 EPS guidance appear to have increased investor confidence, leading to the rise in its stock price. As of February 9, 2017, Wendy’s was trading at $14.22, which represents a growth of 27.8% since the announcement of its 3Q16 earnings on November 9, 2016.

The stock also got a boost from Donald Trump’s victory in the US presidential election. Investors expect Trump to loosen regulations, which could be beneficial for the restaurant chain.

Year-to-date performance

Fiscal 2016 was a good year for Wendy’s, as the stock returned 26.7%. Year-to-date (year-to-date), the stock has risen 5.2%. During the same period, its peers, Jack in the Box (JACK), McDonald’s (MCD), and Restaurant Brands International (QSR) have returned -2.8%, 2.3%, and 6.7%, respectively.

By comparison, the Consumer Discretionary Select Sector SPDR ETF (XLY) has returned 4.7%, since the beginning of 2017. XLY has invested ~9.6% of its holdings in restaurant companies.

Outlook

With Wendy’s 4Q16 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 for next four quarters. We’ll wrap up by looking at the company’s valuation multiple and anticipated stock price over the next 12 months.

Let’s continue now by analyzing Wendy’s 4Q16 revenue expectations.

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