While it's true that Wendy's earned $12.4 million, or 3 cents per share, a year ago, last year's earnings were also boosted by $18 million gain on an investment sale. Plus, Wendy's earnings dropped this quarter to 1 cent per share but the results also included significant costs related to remodeling. When adjusting out these costs, earnings were 3 cents per share, in line with Street estimates.

Revenue were up 2% year over year to $604 million, missing estimates by less than 2%. That's not much of a surprise, however. But it was still enough to outperform McDonald's, which posted revenue 1% revenue growth. For Wendy's, I was also pleased with the 1% growth in same-store sales for North America, which was on par with Chipotle's performance and slightly better than McDonald's.

I'm not going to say that Wendy's is stealing share from McDonald's and/or Chipotle, but the fact that gross margin advanced 50 basis points year over year to 23.7% is also an encouraging sign the company is outperforming its own expectations. The fact that Wendy's raised its prices, which helped offset the decline in its transactions, demonstrates good execution.

In other words, although Wendy's is seeing less foot traffic, the customers it gets are paying more -- a sign the company is building leverage. If management can continue to capitalize on this performance, the stock should perform accordingly. In that regard, for the next quarter, the Street is looking for 6 cents in earnings per share on revenue of $664.4 million.

Bottom Line

There were concerns regarding the transition that Wendy's has undertaken, but I believe the greater risk is with the company maintaining the status quo. Wendy's is not completely out of the woods just yet. While, the company still has far to go to match McDonald's and Burger King ( BKW) in operating margin, management seems to be steering the fast-food giant on the right path.

Accordingly, despite the fact the stock is near its 52-week high, I still see long-term value in these shares. With modest free-cash-flow growth of 4% to 6% over the next couple of years, these shares can reach $8 to $10, and the 2.80% yield makes waiting a tad easier.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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