Horizon Kinetics Owns 6% of Wendy’s

We would consider McDonald’s Corporation (NYSE:MCD) and Burger King Worldwide Inc (NYSE:BKW) to be the two closest peers for Wendy’s. McDonalds has only been able to eke out modest growth rates in revenue and earnings compared to a year ago, and even with its strong brand name and defensive attributes (a beta of 0.3, and a dividend yield above 3%), we’re not sure it’s an attractive buy at 18 times trailing earnings. Burger King is up 20% from its levels shortly after its June IPO; it currently trades at 25 times consensus for 2013. We would avoid that stock for now as its valuation depends on high growth of the business.

Wendy’s can also be compared to Jack in the Box Inc. (NASDAQ:JACK) and Yum! Brands, Inc. (NYSE:YUM). Trailing earnings multiples at these two quick service restaurants are in the 20 range, though Wall Street analysts expect high growth at Jack in the Box. That company may be worth watching, but as with Burger King we would hesitate to buy at this time. Yum is currently struggling with demand in China, where the company earns a substantial portion of its revenue and income; since it is so macro dependent, interested investors would have to look closely at that country in order to evaluate an investment in Yum. Several of these peers made our list of the most popular restaurant stocks among hedge funds in the third quarter of 2012. See hedge funds’ favorite restaurant stocks. We’d note that the market is generally valuing quick service restaurants much higher than their table service cousins: Darden Restaurants (NYSE:DRI), for example, currently carries a trailing P/E of 13. Value investors therefore may want to look at the table service restaurants as opposed to Wendy’s and other companies in the quick service segment.

Disclosure: I own no shares of any stocks mentioned in this article.