What attracts me to Wendy's/Arby's Group (NYSE: WEN) is that the fact that the company is in the midst of a turnaround plan that appears to be headed in the right direction. Mr. Market, on the other hand, wants to wait until the plan has firmly succeeded before rewarding investors. This desire for certainty translates into potential opportunity for investors today.

IN PICTURES: Eight Ways To Survive A Market Downturn

Two Great Brands
First off, Wendy's and Arby's are two quality brands in the restaurant industry. To be quite honest, what pushed me to take a closer look at this company is hearing a lot of talk in my hometown about how Arby's is suddenly better than ever.

Both restaurant concepts have been around for years and both offer a different offering to the consumer. (For more, see Sinking Your Teeth Into Restaurant Stocks.)

Very Budget Friendly
Like McDonalds (NYSE:MCD), Jack in the Box (Nasdaq:JACK) and Yum! Brands (NYSE:YUM) KFC and Taco Bell brands, the Wendy's/Arby's Group offers very budget friendly foods, a big plus in today's environment.

While many consumers are opting for the grocery store instead of restaurants, WEN provides customers with many items for just 99 cents. In many cases, you can feed a family of four for under $10 at both these restaurants. Once you factor in the costs and time to go the grocery store, alternatives like Wendy's are quite reasonable.

Turnaround Catalysts
The Wendy's/Arby's Group, with a market cap of $2.30 billion and an enterprise value of $3.28 billion, is the third largest quick service restaurant company. The company is owned and franchised stores total approximately 10,000.

The company is in the middle of strategic initiatives aimed at strengthening the brand image of the store concepts and managing the stores for efficiency. Such goals appear to be headed in the right direction: in the second quarter, adjusted EBITDA was $117 million up 13% from the comparable 2008 quarter.

The company is on track to eliminate nearly $50 million in G&A expenses in 2009, which will further strengthen operating performance. (For more, see What Owning A Stock Actually Means.)

You may have seen the recent commercials that Wendy's is now offering boneless chicken in its stores - in June this led to record sales. The company continues to get great press from the quality of its fast food relative to other players in the space. Recently, the company announced major international franchise agreements internationally, a relatively underserved area for Wendy's and Arby's.

The Bottom Line
As the company continues to successfully execute its turnaround strategy and increase EBITDA, the share price will likely follow. At $500 million EBITDA, the company is trading at an implied multiple of 6.5 times EV/EBITDA. This compares to 9 times for McDonalds and 9.3 for Yum! Brands. While these two companies are operating much more efficiently than Wendy's/Arby's Group at this point, WEN is improving efficiency and expanding strategically. Continued progress should enable Wendy's to earn a more comparable multiple to its peers, rewarding investors today.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. 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.
  6. 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?
  7. 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?
  8. 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?
  9. 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.
  10. 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.
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