Wendy's Up 6% After Arby's Sale; Investors Reconsidering The Stock?

Investors may be giving Wendy's

another look after the company announced yesterday that it is selling its Arby's franchise to a group formed by Roark Capital Group. Wendy's (

) will retain an 18.5% stake in the Arby's business. The aggregate transaction value of the deal is estimated to be $430 million. The terms of the agreement provide for Wendy's/Arby's Group to receive at closing approximately $130 million of cash, subject to customary adjustments, and retain an 18.5% common stock interest in the Arby's business expected to be valued at approximately $30 million. Arby's has been an albatross that Wendy's has been trying to rid itself of for some time, as the company has revealed that it was looking at strategic alternatives for the quick-service restaurant chain on a number occasions in the last year. This deal paves the way for the company to focus on its Wendy's brand exclusively. In discussing the deal, Wendy's President and CEO Roland Smith said that Wendy's initiatives include "revitalization of our core menu, expanding breakfast, modernizing our facilities, building new restaurants in the United States and pursuing global expansion." He added that the deal would be accretive for shareholders and that the company is laying the groundwork for "10% to 15% average annual EBITDA growth in 2012 and beyond." That last tidbit is rather compelling given the valuation of the stock. WEN shares trade at a price/book ratio of just 0.88, meaning that the stock can be purchased for less than the its total assets minus intangible assets and liabilities. If the company's EBITDA projections are at least semi-accurate, it stands to reason that the stock is worth more than its book value. Furthermore, WEN trades at a EV/EBITDA valuation of 8.16, which is substantially less than competitors such as McDonald's

and Yum! Brands

, among others. If investors factor in annualized EBITDA growth of 10% to 15% per year, the current valuation is compelling. It would appear that the market may be coming to this conclusion as well, as WEN shares have jumped almost 6% to $4.82 during Tuesday's trading session.