The sassy fast food chain Wendy’s has been firing on all cylinders lately as a world of social media, burgers, Frostys, and square burgers all seem to be big hits with consumers.
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Wendy’s ($WEN), once not exactly the powerhouse it is now, has seemingly captured increased sales store growth, and impressively so. EPS projections for next year are expected to grow 23.16%, and ~27% next year, and that’s not even the best news. Looking at the past EPS growth, there has been a 70.30% increase over the past 5 years, and a 28.3% growth in sales quarter over quarter.
Are people really buying that many Wendy’s Frostys?
Taking a look at Q2 earnings call slides, we find some interesting highlights:
- 22nd straight quarter of positive same store restaurant sales
- 36 global stores opened in the quarter, with 69 global store openings year to date
- Year over year cash flow growth of 33.6%
- Increasing or adding deliveries: delivery available in 40% of North American restaurants within the DoorDash partnership
- Delivery drives an average check higher 1.5x-2x
- Positive franchisee sentiment
- Q2 ending cash balance of $195 million
While we don’t get to see a breakdown of how many hamburgers or Frostys were actually made or sold, we can see that Wendy’s is an attractive long term buy who seems to be a smaller, yet effective player within the fast food industry. They may not be McDonalds ($MCD), but they are still a major force to be reckoned with.
Making money on Wendy’s
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With a street value of $20, and various financial models saying the same thing, buying options could be the way to catch more of an upside to the square burger chain. Looking at a previous close price of $17.32 (9/24/18), we want to buy 17 JAN 2020 $20 CALL options. $1.30 cost per option, and 10 contracts puts our entry point at $1,300. If the stock hits $21 by 23 MAY 2019, sale price would be $2.43 an option, giving you a profit of $1,130, or an 86.9% return on your investment.