Wendy's Q4 Results Likely To Be A Tasty Morsel In A Recently Unappetizing Sector

Despite an industry slowdown, Stephens expects positive comps from Wendys Co WEN, which is set to report its fourth-quarter results as well as host its investor day Thursday.

Analyst Commentary

Analyst Will Slabaugh expects EPS of $0.09, in line with Street. Wendy’s has met or exceeded consensus EPS estimates for 5 consecutive quarters, trend that is expected to continue as the company shifts to a 95 percent franchised model that further insulates earnings from SSS volatility.

Slabaugh also expects +0.5 percent SSS growth, which implies a 90-bps upside on a two-year basis from the third quarter and a 260 bps rise from the second quarter.

“We credit the accelerating 2-year momentum to a continuation of ‘4 for $4’ strength, the re-vamped core chicken sandwich launch, innovative Sriracha Chicken LTO (though likely more beneficial buzz than direct sales), and a broader pick-up in the burger category,” Slabaugh wrote in a note.

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The analyst noted that the likely positive comp should carry positive traffic growth, with minimal pricing on the menu.

Investor Day

For the investor day, the analyst expects to hear that refranchising initiative is progressing well and believe the potential for guidance toward the mid-to-high end of fiscal year 2018 free cash flow expectations ($200 million–$250 million).

“Given recent cost controls, we also believe there is a possibility that FY18 G&A could ultimately come in below the Company's previously stated target of roughly $230 million, making EPS targets easier to hit,” Slabaugh noted.

Last year’s Investor Day guidance called for EPS growth in the "high teens" for FY17 and "20+ percent" for FY 2018, which is above current consensus expectations for 12 percent and 17 percent.

Rating Reiteration

Slabaugh, who reiterated his Overweight rating on the stock, expects FY 2017 system-wide SSS growth and adj. EPS of +1.6 percent and $0.48 (vs. consensus of +2.2 percent and $0.46).

“While we believe investor expectations have been climbing along with the stock (we estimate buyside expectations at 1–1.5 percent), we still believe WEN's results will be a bright spot in a choppy environment and that the Investor Day will provide further confidence in owning WEN over the longer term,” Slabaugh added.

At last check, shares of Wendys were up 0.38 percent to $14.36. The analyst raised his target price by $1 to $16.