It’s Time To Buy Wendy's, Again
We've been bullish on Wendy's (NASDAQ: WEN) for the last year or more but there is a problem. The problem is the stock is very highly valued and has struggled within a trading range over the past 12 to 15 months. The one significant deviation from that trend was completely based on a Reddit-induced meme-stock frenzy but that has passed as well. Now, more than a year into the fast-food recovery, Wendy's is proving its worth. The company just delivered a very strong second-quarter earnings report and with it, an even more significant update to its long-term outlook that should get the stock trending higher again. If you've been thinking about putting some money into Wendy's, now may be the time to do it.
Wendy's Is Cooking Up High-Quality Results
Wendy's had a very strong second quarter and this will likely not be the last one. Looking forward, the comps will start getting a lot tougher as soon as the next reporting season but double-digit growth is expected through the end of the year. The company reported $493.34 in net consolidated revenue to beat the consensus estimate by 660 basis points and grow 22.6% over last year. This is an easy comp as last year revenue shrank slightly in the second quarter but the two-year comparison is strong as well. Wendy's revenue is up 13% over the 2019 second quarter time frame due to the restaurant-centric growth strategy.
On a comp basis, Wendy's reports systemwide sales grew 17.4% with notable strength in the international segment. In the US, comp sales grew by 16.1% versus the 13.7% expected by the analysts while International comp sales grew by 31.4% and, moving down the report, the details are just as juicy. The company reports restaurant-level margins greater than 20% and delivered strong bottom-line results. The GAAP earnings of $0.29 beat the consensus estimates by $0.11 while the adjusted $0.27 beat by $0.09.
Turning to the guidance, Wendy's updated its full-year fiscal 2021 guidance for the second time. The company is now expecting system-wide revenue growth in the range of 11% to 13% due to the acceleration of its restaurant growth strategy. The company added 28 net new stores over the past quarter and plans to add additional stores in upcoming quarters as well. As for earnings, the company expects full-year EPS in the range of $0.79 to $0.81 versus the prior guidance of $0.72 to $0.74 and the consensus estimate of $0.74. More importantly, the company says the Q2 results and the acceleration of their growth strategy have led to a meaningful increase to the 2025 restaurant growth targets and that bodes very well for revenue and earnings growth.
Wendy's Delivers A Sizzling Dividend Increase
Wendy's is a relatively high-quality dividend payer that once again comes with a yield above 2.1%. The company's second-quarter results were strong enough the board approved The fourth dividend increase since the dividend cut that came in the wake of peak-COVID fear. The dividend increase is worth $0.02 per quarter for an annual payout of $0.48 which is equal to the pre-COVID payout. Based on our assessment of the company's history of dividend payments, the earnings results, the outlook for growth, and the balance sheet, we will not be surprised to see Wendy's increase the dividend above pre-COVID levels as soon as the next quarter.
The Technical Outlook: Range-Bound Wendy's Struggles With Resistance
The biggest negative from Wendy's meme-induced price pop is the presence of resistance. There are a lot of unlucky shareholders that own this stock above $24 looking to get out right now. That may cap price action in the near term but, for now, however, it looks as if the bias is upward and may soon move above the 30-day moving average. In that scenario, we see Wendy's moving up to test resistance at the top of the range near the $24 level. At that time, if the outlook for growth in the second half of the year still looks good, we may see some of those unlucky shareholders get bullish again and help dry price action even higher. Longer-term, the meme craze will soon become a blip on the radar as shares of Wendy's work their way up to $30.
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