Because of its smaller geographic footprint and low-profile advertising, Wendy's (NYSE: WEN) has almost always played second fiddle to McDonald's (NYSE: MCD) and Burger King (NYSE: BKC).

But that might change soon, particularly if the company is sold-off to a private equity venture or another deep-pocketed entity as some are speculating.

Could this actually happen? The simple answer is yes.

Potential Buyers
Obviously, there are lots of possible buyers out there, but the No.1 prospect everyone is talking about is a company called Triarc which is run by billionaire financier, Nelson Peltz.

Why Triarc, and why Peltz?

Peltz is an activist shareholder who has earned a reputation in the restaurant industry as a savvy manager. He also loves underdogs and turnaround situations, such as Arby's which he is currently in the process revamping. (To learn more, read Cashing In On Corporate Restructuring.)

One more thing also makes him a logical fit. Peltz also heads up a firm called Trian Fund Management -- which "coincidentally" is said to own a little more than 8% of the Wendy's shares. Convenient?

In any case, I view Peltz as a positive influence.

After all, he has been extremely vocal in his efforts to enhance shareholder value over the last several years. In fact, he was behind, or at least in support of, the company's move to sell its underperforming Baja Fresh Mexican Grill concept. He was also a big supporter of the company's successful Tim Horton's (NYSE: THI) spinoff.

Both were great ideas, and now his sights may be set on Wendy's, which many feel would compliment to his investment portfolio.

Wendy's Isn't Cheap
Many are asking, "why Wendy's?" After all, at about 29-times this year's consensus estimate of $1.27 a share, it's not exactly cheap. The answer could be that the company has a lot of "pent up" value in real estate. Theoretically Peltz and his team could sell-off the real estate piecemeal.

In fact, some analysts have estimated that the company could raise money by selling-off several hundred pieces of property/buildings, without destroying the franchise the company has worked so hard to build up.

Certainly the current management team could do that too, but speculation is that Peltz, with his connections and money, could do it quicker and much more profitably.

Will Peltz Pay a Premium? That remains the $64,000 question. After all, other competitors have compelling stories and business models, but aren't anywhere near as expensive as Wendy's. For example, McDonald's trades under 20-times this year's consensus estimate of $2.69 per share, and Burger King trades at just over 22-times this year's estimate of $1.06 per share.

Lots of Upside for Wendy's
However, Wendy's has many things that could potentially drive the stock. The prospect of being bought out is just one of them. The company also has new breakfast offerings that it will be rolling out soon and which could be instrumental in driving sales and the stock. It also has several new lunch and dinner menu items which should help drive comparable stores sales over the next few quarters.

In other words, a buyout is just one potential catalyst that could drive the stock.

The Bottom Line
I think the potential catalysts mentioned above mean the stock has another 10% to 20% in it over the next year. If a buyout doesn't materialize over the next 60 to 90 days, I think that the stock could see some selling pressure, however, this is only real near-term risk that I see.

Buyout or not, I continue to like Wendy's as an investment.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center