Wendy's Co Stock Downgraded (WEN)

NEW YORK (TheStreet) -- Wendy's (Nasdaq:WEN) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

• 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 976.5% when compared to the same quarter one year prior, rising from -$1.41 million to $12.35 million.
• Despite its growing revenue, the company underperformed as compared with the industry average of 9.1%. Since the same quarter one year prior, revenues slightly increased by 1.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
• WENDY'S CO has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. However, the consensus estimates suggest that there will be an upward trend in the coming year. During the past fiscal year, WENDY'S CO increased its bottom line by earning $0.05 versus $0.04 in the prior year. This year, the market expects an improvement in earnings ($0.15 versus $0.05).
• The gross profit margin for WENDY'S CO is rather low; currently it is at 23.20%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.10% significantly trails the industry average.
• Net operating cash flow has significantly decreased to -$15.14 million or 128.32% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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The Wendy's Company, through its subsidiaries, operates and franchises Wendy's quick service restaurants. The company's restaurants engage in the provision of hamburger sandwiches. The company has a P/E ratio of 64, below the average leisure industry P/E ratio of 74.7 and above the S&P 500 P/E ratio of 17.7. Wendy's has a market cap of $1.75 billion and is part of the services sector and leisure industry. Shares are down 16.4% year to date as of the close of trading on Tuesday.

You can view the full Wendy's Ratings Report or get investment ideas from our investment research center.
-- Written by a member of TheStreet Ratings Staff

 

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