Wendy’s – Intrinsic Value of Stock

Value Investing

‘Quality is still our recipe’ – Dave Thomas

Wendy’s is the second largest publicly traded informal eating-out (fast-food) hamburger chain. Its current market capitalization places it around $5 Billion. Therefore, it falls into the mid-cap arena of stocks. At the time of this article’s inception, November 2021, Wendy’s was trading on the NASDAQ at $23 per share. Its intrinsic value is a little less than half the market value and a value investor’s buy point is around $8 per share. The company does pay a small dividend. Current dividend yield is slightly less than 2%. Overall, the company is profitable but stagnant related to growth. Stated succinctly, Wendy’s is nowhere near worth a current market value of more than $20 per share. 

This company runs the industry financial model commonly used with other fast-food restaurant chains. It has three revenue and expense segments of operations. The first and core segment is the traditional corporate owned locations. Wendy’s has 361 company owned stores. As such, they have a traditional profit and loss calculation associated with this segment. A second segment and the real driving force of profit is the franchising arm of the company. There are 6,467 franchisees, with corporate owned stores, Wendy’s totals 6,828 restaurants. This segment is driven by the 4% franchise fee placed on all sales of the franchisees. Similar to McDonalds, the core source of profitability stems from the franchising aspect of operations. A third and not as profitable as franchising is the real estate arm. Just like McDonalds and other well managed restaurant chains, Wendy’s negotiates long-term leases of property in ideal locations and in turn negotiates beneficial long-term leases with franchisees to pay rent for the use of that land. The franchisee uses their capital to build the store, equip it and initiate operations at that site.

Unlike McDonalds, Wendy’s has

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