“While we are encouraged by continued refranchising, capital structure maneuvers, and share repurchases that have acted as catalysts for an upward revaluation in shares, with valuation now at category leading levels, we believe increased visibility into fundamental drivers of EBITDA growth reacceleration in 2018 and beyond is necessary for further multiple expansion,” Wedbush’s Nick Setyan said about Wendys Co WEN in a note.
The analyst maintains a Neutral rating on the company, with a price target of $14.
Reasonable Guidance
Wendy's reported its Q4 results with the EPS at $0.08, a penny below the consensus expectations, due to 0.8 percent North American system same store sales growth, as compared to the consensus expectation of 0.6 percent.
The company guided to adjusted EBITDA of $396 million–$404 million, with EPS of $0.45–$0.47 and North American system same store sales growth of 2–3 percent for 2017.
“We believe the magnitude of G&A cuts render EPS & EBITDA guidance realistic, but do not expect upside to potentially aggressive flat YoY UL margin expectations given 4 percent labor inflation and rising commodities, while lowered SSS growth targets of 2–3 percent have also proved overly optimistic recently,” Setyan stated.
Related Link: Mid-Morning Market Update: Markets Mostly Higher; Wendy's Posts Mixed Q4 Report
Long-Term Guidance
The long-term guidance also appears achievable, although for this, Wendy's would need sustained same-store sales growth acceleration.
The company updated its 2020 guidance to free cash flow of $275 million, on adjusted EBITDA margins of 38–40 percent, 7,500 global units and system-wide sales of $12 billion.
“Given continued contributions from image activation remodels and a successful barbell strategy, we believe the drivers for sustained LSD SSS growth exist, but additional upside may prove elusive,” the analyst went on to say.
Setyan expects share buybacks and dividends to be the ongoing catalysts for shareholder value.
The EPS estimate for 2017 has been lowered from $0.48 to $0.46 to reflect the guidance.
Image Credit: By Ramon FVelasquez - Own work, CC BY-SA 3.0, via Wikimedia Commons© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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