The COVID-19 pandemic had a severe impact on the global restaurant industry. In fact, the National Restaurant Association characterized 2020 as the “the most challenging year for the restaurant industry.” Nevertheless, companies adapted to the changing circumstances by building robust home delivery networks and drive-thrus. These adaptations allowed quick-service restaurants to generate a substantial increase in order volumes.
Dine-in restaurants have been making a strong comeback over the past couple of months owing to pent-up demand from patrons following nearly a year of take out orders, takeaways and home deliveries. The National Restaurant Association projects a 10.2% increase in total sales at U.S restaurants this year, with an 8% rise in sales at limited service fast food chains.
Given this backdrop, we think mid-cap restaurant operators The Wendy’s Company (WEN), Papa John’s International, Inc. (PZZA), and Jack in the Box Inc. (JACK) should grow substantially in the coming months. As such, shares of these companies could be solid additions to one’s portfolio now.
The Wendy’s Company (WEN)
With a $5.10 billion market capitalization, WEN is a quick-service restaurant company that operates through three segments: Wendy’s U.S., Wendy’s International, and Global Real Estate & Development. The company has a huge network of franchisees operating in the U.S. and internationally.
On June 9, WEN commenced a refinancing transaction to reduce its debt and interest burden significantly. The company plans to issue at least $900 million of fixed rate senior secured notes to retire two tranches of senior notes worth $908 million.
On June 2, it was made public that WEN has launched its brand in the U.K. and will open four new restaurants in the second half of the year. With this expansion, the company should increase its foot traffic, helping it to thrive as one of the most sought-after food brands globally. In May, WEN announced the transition of 13 franchised restaurants in Quebec in accordance with certain agreements to build additional new restaurants by 2025.
WEN’s sales increased 13.3% year-over-year to $189.06 million in its fiscal first quarter, ended April 4. Its operating profit grew 70.6% from its year-ago value to $83.12 million, while its net income improved 186.4% year-over-year to $41.36 million. The company’s EPS increased 200% year-over-year to $0.18.
Analysts expect WEN’s revenues to increase 6.7% year-over-year to $1.85 billion in the current year. A $0.74 consensus EPS estimate for the current year indicates a 29.8% rise from the last year. Regarding its current fiscal quarter, ending June 30, 2021, its EPS is expected to remain at $0.18, indicating an increase of 50% year-over-year. WEN has an impressive earnings surprise history as well; it beat consensus EPS estimates in three out of trailing four quarters. Shares of WEN have gained 4.8% over the past year, and 5.4% year-to-date.
It is no surprise that WEN has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has a B grade for Momentum and Quality. Among the 46 stocks in the A-rated Restaurants industry, WEN is ranked #20.
To see additional WEN Ratings for Sentiment, Stability, Value, and Growth, click here.
Papa John’s International, Inc. (PZZA)
PZZA operates and franchises pizza restaurants and provides delivery services, internationally. It operates through four segments: domestic company-owned restaurants, North America commissaries, North America franchising, and international operations. The company has a $3.81 billion market capitalization.
On May 12, PZZA announced the repurchase and conversion of all convertible preferred stock owned by Starboard Value LP. PZZA’s outstanding shares are expected to increase by roughly 3.5 million shares following this transaction, while a $9 million dividend will be eliminated with the conversion. The reduction in the dividend should boost PZZA’s EPS significantly.
In April, PZZA has announced its plans to open 15 new restaurants in Cambodia over the next three years as part of its expansionary policies to strengthen its global presence.
PZZA’s revenue increased 24.9% year-over-year to $511.75 million in its fiscal first quarter, ended March 28. Its net income stood at $33.88 million, up 301.3% from the same period last year. Its operating income grew 202.9% from the year-ago value to $46.86 million. The company’s EPS increased 446.7% year-over-year to $0.82.
A $489.27 million consensus revenue estimate for its fiscal second quarter (ending June 2021) indicates a 6.2% increase year-over-year. The Street expects the company’s EPS to rise 39.6% from the prior year quarter to $0.67 in the current quarter. PZZA has an impressive earnings surprise history as well; it beat consensus EPS estimates in three of the trailing four quarters. PZZA has gained 25.9% over the past year. The stock has gained 22.4% year-to-date.
PZZA has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. PZZA also has a B grade for Value, Momentum, and Quality. It is ranked #6 in the Restaurants industry.
Click here to view additional PZZA Ratings for Growth, Sentiment, and Stability.
Jack in the Box Inc. (JACK)
JACK operates and franchises quick-service restaurants. It provides a wide range of food items and allows customers to customize meals. With a $2.59 billion market capitalization, JACK operates as one of the nation’s top fast-food burger chains, with more than 2,200 quick-serve restaurants.
On May 7, JACK declared a $0.44 per share dividend, representing a 10% rise from its prior dividend amount.
JACK’s revenues increased 19% year-over-year to $257.22 million in its fiscal second quarter, ended April 11. Its earnings from operations grew 97.6% from their year-ago value to $64.89 million, while its net income improved 213.5% year-over-year to $35.93 million over the period. The company’s EPS increased 216% year-over-year to $ 1.58.
A $278.08 million consensus revenue estimate for its fiscal fourth quarter, ending September 30, 2021, indicates an 8.9% improvement from the same period last year. Analysts expect the company’s EPS to come in at $1.65 in the next quarter, representing a 2.5% rise year-over-year. Also, JACK surpassed the Street’s EPS estimates in each of the trailing four quarters, which is impressive.
JACK has gained 25.3% year-to-date. The stock has gained 26.6% over the past six months to close yesterday’s trading session at $116.24.
Given these improvements, it’s not surprising that JACK has a B grade for Value, Momentum, and Quality. It is ranked #27 in the same industry.
Beyond what we’ve stated above, we have also rated JACK for Growth, Sentiment, and Stability. Click here to view all JACK Ratings.
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WEN shares were trading at $23.37 per share on Monday afternoon, up $0.27 (+1.17%). Year-to-date, WEN has gained 7.56%, versus a 12.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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