There are always new food trends coming along and this year, three flavors are big hits: anything pretzel, salted caramel, or chicken and waffles (that counts as one flavor).
Quick serve restaurant chains are cooking up these trendy flavors to some success. The Wendy’s Co (NASDAQ:WEN) has its runaway hit, the pretzel bacon cheeseburger, AFC Enterprises, Inc. (NASDAQ:AFCE) its chicken waffle tenders, and Dunkin Brands Group Inc (NASDAQ:DNKN) a pretzel roast beef sandwich, caramel coffees, and salted caramel ice cream at its Baskin-Robbins stores.
Comforting chicken and waffles
The most intriguing is AFC Enterprises, Inc. (NASDAQ:AFCE), owner of Popeye’s Louisiana Kitchen and Popeye’s Chicken & Biscuits quick serve restaurant chains. The restaurants feature spicy New Orleans specialties like Cajun fried chicken and shrimp, jambalaya, red beans and rice, etc.
Its newest gimmick is a soul food phenomenon, fried chicken and waffles with maple syrup. The Popeye’s iteration is chicken tenders fried in a waffle batter and served with a honey maple dipping sauce. Reaction has been good for the chicken and so-so for the sauce.
It is refurbishing 60% of domestic restaurants to Popeye’s Louisiana Kitchen concept, and has been expanding by a reasonable 6% per year with 185 new openings planned in 2013. Currently, it has 2,119 restaurants in the U.S. and 28 foreign countries.
This company had a challenged past having to sell off its prime assets (Cinnabon, Seattle’s Best Coffee, and Church’s Chicken) to pay off tax obligations after the Arthur Andersen accounting scandal.
AFC Enterprises, Inc. (NASDAQ:AFCE) is a great turnaround story parlaying the remaining asset, Popeye’s, into number two behind Yum! Brands as a leading quick serve chicken concept. AFC Enterprises, Inc. (NASDAQ:AFCE) CEO Cheryl Bachelder learned the business as a KFC executive. She has changed Popeye’s from fried chicken fast food in primarily urban low rent locations to a suburban quick serve chain with more emphasis on Cajun cuisine. She owns 209,984 shares.
AFC Enterprises, Inc. (NASDAQ:AFCE) is mainly a franchiser, with over 98% of the stores franchisee-run. Its expanded advertising seems to be working with the numbers it has been reporting. For the last five years, it has been using the cash generated to pay down debt and buy back shares. Last year, it bought back 144,000 common shares, with another $51 million authorized remaining.
It has a market cap of only $904 million but is trading close to 52 week highs, up 66% this last year. The trailing P/E is extended from a low of only 22.80 last October. It isn’t the undiscovered gem it once was, but it is still undercovered with only four analysts giving two Strong Buys, one Buy, and one Hold with expectations of double digit growth of 17%.
On pullbacks, this franchise model with an impressive operating margin of 28.33% and a return on equity of over 100% is something to start taking tender sized bites in.
The Wendy’s Co (NASDAQ:WEN) pretzel bacon cheeseburger and waffle cone Frostys are playing these flavor trends. On a CNBC interview, CEO Emil Brolick noted the new cheeseburger is a limited time only product but “…not a one hit wonder. Looking out the next year our product pipeline is rich and full.”
The company’s press release gushes, “This pub-style cheeseburger gained critical acclaim in test markets earlier this year, outperforming any other promotional hamburger in recent The Wendy’s Co (NASDAQ:WEN) history.”
The company’s stock itself is sizzling, trading near 52 week highs, up 63%. The Wendy’s Co (NASDAQ:WEN) also offers a 2.70% yield at a too hot to touch trailing P/E of 200.81. That explains a 13.90% short interest. The forward P/E is still a high 27.52.