McDonald’s Corporation (MCD), Burger King Worldwide Inc (BKW), The Wendy’s Company (WEN): Why This Burger Stock is a Must-Buy

When it comes to the quick-service restaurant industry, or QSR, two of the big players that come to my mind are McDonald’s Corporation (NYSE:MCD) and Burger King Worldwide Inc (NYSE:BKW). However, there is one more company that deserves attention: The Wendy’s Company (NASDAQ:WEN). Wendy’s is well known for its great-tasting burgers, salads, and sandwiches.

Reimaging program continues

In order to improve its market share, The Wendy’s Company (NASDAQ:WEN) came up with its Image Activation Program and introduced new menu items.

McDonald's Corporation (NYSE:MCD)

The Image Activation Program is a part of The Wendy’s Company (NASDAQ:WEN) rebranding process and “Recipe to Win” strategy, which is comprised of a new logo, stylish staff uniforms, updated menu boards, restaurant signage, new innovative products, packaging, and renovation of both interiors and exteriors.

In 2012, it reimaged 60 stores and by the end of 2013, the number of reimaged stores will be around 100. Wendy’s expects to reimage 50% of company-operated stores by 2015. So far, reimaged stores have achieved first-year sales gains of around 25% and sustained increased sales (after year-one) of about 20%.

The Wendy’s Company (NASDAQ:WEN) will invest around $470 million in this program. The reimaging has also led to the closure of some Wendy’s stores. To offset the revenue loss from store closures, Wendy’s is luring franchisees with a $100,000 incentive for the remodeling initiative.

Its competitors Burger King Worldwide Inc (NYSE:BKW) and McDonald’s Corporation (NYSE:MCD) are also motivating their franchisees to undergo low-cost remodeling projects. Burger King Worldwide Inc (NYSE:BKW) is aiming for 100% franchise stores by the end of 2013 to achieve a better operating margin in the future. It is taking global opportunities by entering into Joint Ventures, or JVs. In 2012, it signed JVs in Central America, Russia, South Africa, Mexico, and China.

McDonald’s Corporation (NYSE:MCD) is pushing its value offerings in the slow European market by introducing value products like Mc-Deal and combo offers with a Casse croute, or snack and value meal, menu. In the APMEA market, it is targeting store growth with tailored local offerings to boost its presence in the region. In the U.S., new product launches such as Chicken Wings, Fish Mcbites, and the Filet-O-fish sandwich are expected to drive sales for it in the second half of 2013.

More emphasis on franchising

To further accelerate its remodeling program, Wendy’s plans to sell 425 of its 1,427 North American company-operated restaurants to franchisees by June 2014. This refranchising program would drive the franchise mix at Wendy’s from 78% to 85%. The refranchising will increase The Wendy’s Company (NASDAQ:WEN) 4% of sales royalties, and it aims for rent of 7% of sales, representing a predictable flow of revenue and earnings.

It has already sold 24 Wendy’s restaurants to NPC International in the Kansas City market for $9.3 million. The restaurants generated $33 million in annual sales. It sold these restaurants for five times the franchisee’s EBITDA. NPC recently signed an agreement to acquire another 13 Wendy’s restaurants in the same market from another franchisee.

The Wendy’s Company (NASDAQ:WEN) also sold five restaurants in the Kansas market to Kirk Williams of Legacy Restaurant Group. The remaining restaurants it plans to sell are anticipated to generate roughly $160 million in proceeds.

Pretzel Bacon Cheeseburger

After product testing in Cleveland, Miami, and Sacramento earlier this year, Wendy’s claimed that the burger outperformed any other promotional hamburger in recent Wendy’s history. The new burger costs $4.99 for a single and $5.99 for a double. Analysts expect that the new burger could increase same-store sales by 3%, or even more, in the third quarter.

Valuation

Wendy’s also underwent debt refinancing in the middle of 2013, which will save around $25 million in interest expenses per year. It has the lowest amount of debt compared to its competitors. Its enterprise value to EBITDA ratio shows that it has the best growth opportunity of the three companies. The price to book value ratio is also lower than that of the other two burger giants (price to book value ratios of less than one offer attractive investment opportunities). All these ratios indicate that Wendy’s is still an undervalued stock.

Company Dividend yield Price/Sales ratio Debt to Equity ratio Enterprise value to EBITDA Price to Book Value ratio PEG ratio
The Wendy’s 2.8% 1.17 0.7 8.6 1.48 1.1
McDonald’s 3.1% 3.58 1 10.4 6.5 1.7
Burger King 1.28% 4.86 2.8 11.6 5.32 1.1

Conclusion

With continuous momentum in its reimaging program, success with the pretzel burger, and cheap stock valuation, Wendy’s has excellent potential for long-term growth. If the remaining reimaging restaurants experience a strong boost in sales, The Wendy’s Company (NASDAQ:WEN) stock will see an upside. I recommend a strong buy for Wendy’s.

McDonald’s Corporation (NYSE:MCD) has been a consistent performer suitable for low-risk seeking investors. I suggest holding the stock.

As far as Burger King Worldwide Inc (NYSE:BKW) is concerned,  its investors are gambling on its transformation toward the franchisee model. I recommend holding this stock as well.

The article Why This Burger Stock is a Must-Buy originally appeared on Fool.com and is written by Ranu Devi.

Ranu Devi has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald’s. The Motley Fool owns shares of McDonald’s.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!