Square burgers and social media for Wendy’s growth

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.

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

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.

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