Wednesday morning’s SEC Form 4 filings detail the insider transactions of A. Scott Weisberg, the Chief People Officer at Wendy’s Co. (NASDAQ:WEN). On this date, September 5th, Mr. Weisberg purchased 20,000 shares of WEN worth more than $80,000. The buys, which were made at an average purchase price of $4.32, increased Mr. Weisberg’s total holdings in his company by a factor of sixty. Before the move, his holdings totaled just 400 shares. These transactions come with curious timing, as the company is coming off of a rather unexciting earnings report last quarter.
In fact, since the start of 2012, shares of Wendy’s have lost 19.4%, falling flatter than culinary competitors like McDonald’s (NYSE:MCD) at -11.2%, Yum Brands (NYSE:YUM) at 6.7%, Jack In The Box (NASDAQ:JACK) at 26.8%, and Sonic (NASDAQ:SONC) at 46.5%. While the bears typically blame a sluggish economic recovery for this selloff, Wendy’s woes are more a result of its determination to shift its focus toward premium products, á la Hardee’s. Over the past few months, the fast food chain has begun testing items like “Black Label Burgers,” and various upscale salad options.
Thus far, results have been mixed. The company disappointed investors in its second quarter earnings release last month, where it posted a loss of $5.5 million, compared to a profit of $11.3 million in Q2 of 2011. Now, adjusted earnings did meet the Street’s expectations at $0.05 a share, but quarterly revenues ($645.9M) missed targets ($647.0M). Interestingly, the stock was up over 4.0% in after-hours trading on Tuesday, riding news that Zacks Investment Research had reaffirmed its neutral rating. The report cited that the company’s strengths lie in its “multiyear turnaround plan,” and its “new breakfast menu and traction to late-night [customers].”
When valuing the company’s earnings, shares of WEN aren’t the most attractive investment, as they are currently trading at a Forward Price-to-Earnings ratio (23.2X) above the likes of MCD (14.9X), YUM (16.9X), JACK (16.6X), and SONC (14.4X). Moreover, the stock sports a stratospheric PEG ratio of 2.7; typically any figure above 2.0 signals an overvaluation.
Intriguingly, Wendy’s looks a bit better from a Price-to-Book (0.9X) and Price-to-Sales (0.7X) standpoint, as both of these metrics are trading below the industry norms of 6.1X and 2.1X respectively. When compared to 5-year average P/B ratios, the company is trading at a 19% discount in relation to its historical book value. This discount is greater than MCD (+18%), YUM (+185%), and JACK (+8%), which are trading at premiums over their historical book values.
Now, some players in the hedge fund industry do like this stock, including Nelson Peltz, Boaz Weinstein, and Israel Englander. Peltz’s Trian Partners fund holds nearly $400 million worth of WEN, amounting to 12.6% of the manager’s total 13F holdings. More prominent managers who are bullish on Wendy’s include D.E. Shaw and Steven Cohen, though each fund’s commitment to the stock is worth less than 0.1% of total holdings. As noted in our top ten list of the 10 Most Popular Restaurant Stocks Among Hedge Funds, Yum Brands and McDonald’s are preferred investments over Wendy’s, likely due to their more reasonable earnings valuations.
To recap: Wendy’s stock has been beaten down in 2012, as revenues and earnings have been quite mediocre. The company does have a turnaround plan in place, and the Street expects improvements in EPS by the end of next year. From a valuation standpoint, WEN is a mixed bag, though Price-to-Book Value ratios are encouraging. Throw in the fact that one insider in particular has been behaving very bullishly, and there are a few reasons to like this stock.