Cheap Stocks Under 5: The Wendy’s Company (WEN)

We at AimHighProfits cover much more than just penny stocks. Cheap Stocks and Stocks under 5 are almost as attractive as the best penny stocks to buy regardless of which exchange they are currently trading on. At the end of the day, it’s all about making money in the stock market with the top stocks currently trading.

Fortunately, this particular cheap stock under 5 holds a very dear place in my memories as a teen. The Wendy’s Company (Nasdaq: WEN) aroma engulfed the freshman classrooms at my Catholic High School  which had a “Seniors-Only” policy for being able to go off campus of lunch back in the late 80’s. If you weren’t yet a senior and walked across the street to get yourself a #1, Biggie-Sized, for $2.95, you would have to finish it without anyone seeing you and somehow sneak back on to school property risking a week in detention if caught. “Welcome to Wendy’s, May I take your order” could be heard during exams in the winter when the windows were open in the classrooms. What sucked most about this was that you could look out the window of half of the freshman classrooms and see the Drive-Thru menu of this currently lagging fast-food restaurant.

Stock in The Wendy’s Company (Nasdaq: WEN) traded as low as 4.85 on Friday before closing at 4.995. Wendy’s filed their 10-K reporting their 2011 Fiscal Year Earnings last week and the numbers and short-term future for the Biggie Combo and Frosty makers has some signs of positiveness.

Struggling in a consumer market that is becoming more selective of the types of food they intake coupled with a long period of consumer constraint due to the economic conditions in the U.S., rumors indicate Wendy’s may choose to remodel their interiors to attract more customers which has been successful for other fast-food franchises in the past.

WEN 12-Month Stock Chart:

In the last 2 years, WEN stock price had a low of 3.77 in July, 2010 and saw a high a year later of 5.62 in July, 2011

RSI, 43.77, is coming off a month long stay around the 50 mark and indicating the stock may be heading towards being oversold. WEN stock buyers pushed the RSI to the 70 mark in November, 2011 when the stock rallied from 4.29 to 5.58 during that period.

MACD is trending downwards as it is below the signal line at -0.0056 indicating WEN is looking for a resistance level currently.

Stochastics indicate a bearish trend on both the %K and %D showing signs of another lite sell off on the stock.

WEN Share Price History

52-Week Change: 1.83%
52-Week High (July 7, 2011): 5.62          52-Week Low (Oct 4, 2011): 4.29
5-Day Moving Average: 5.05          10-Day Moving Average: 5.08
50-Day Moving Average: 5.11          200-Day Moving Average: 5.04

WEN Stock Statistics

Avg. Volume (3 month): 4,935,470          Avg. Volume (10 day): 5,837,540
Shares Outstanding: 389.14M          Float: 280.26M
% Held by Insiders: 26.27%
Shares Short (as of Feb 15, 2012): 13.73M          Short Ratio: 2.30          Short % of Float: 4.30%

Where’s The Beef?

The Wendy’s Company, the 3rd biggest hamburger franchise, has

  • 6,244 Wendy’s restaurants in operation in North America as of January 2, 2012 of which,
    • 1,417 were operated by Wendy’s;
    • 4,827 by a total of 454 franchisees, 350 of which are in 26 countries other than North America;
  • a 50% partner with Tim Hortons Inc. of which the joint venture owns 105 Wendy’s/Tim Hortons combo units in Canada;
  • a 49% partner in a joint venture of Wendy’s restaurants in Japan which opened its first restaurant in December, 2011; and
  • derives revenues from the restaurant business from three principal sources:
    • sales at company-owned restaurants;
    • sales of bakery items;
    • and franchise royalties received from Wendy’s franchised restaurants (4% of monthly sales or $1,000, whichever is greater)

Note: 65.1% of 2011 sales came from drive-thru or pick-up window sales, up 0.2% from 2010.

The Good News:

  • Sales increased to $2,43 billion, an increase of $56 million compared to fiscal 2010 yet operating income decreased from $160.4 million in 2010 to $149.9 million for fiscal 2011.
  • Net income reported was $12.9 million compared to a loss of $2.6 million in fiscal 2010.
  • Wendy’s celebrated Independence Day in 2011 by closing the deal to sell off the Arby’s brand worth $130 million in cash, removal of $190 million in debt and retained an 18.5% stake in Arby’s worth $19.0 million. Essentially, WEN got $339 million for the sale of Arby’s.
  • The company bought back 1,376,944 of its shares at an average price of 4.62 under its repurchase program which ended at the end of fiscal 2011. Also, the company opened 20 new stores, closed 15 underperforming stores and purchased 18 stores from their franchisees.
  • In the last 3 years, 230 Wendy’s restaurants were opened, 266 underperforming Wendy’s restaurants were closed, 71 of which were the termination of a lease contract for Wendy’s restaurants in Japan in 2009. Thus 35 more stores in the last 3 years less the Japan closings.

The Bad News:

  • The company expects to incur significant costs in 2012 for the closure of the Atlanta restaurant support center and its relocation to Ohio which they anticipate to be completed by the third quarter of 2012.
  • The rise in oil prices could affect their profitability. Changes in commodity costs (including beef, chicken and corn), supply, fuel, distribution and other operating costs, especially beef or chicken prices, could harm operating results.
  • 79% of the Wendy’s restaurants are franchise restaurants which the company receives revenue in the form of royalties, rent and fees from franchisees. This is a huge amount of dependence for the company’s financial results which is basically banking on their operational and financial success on their franchisees.
  • As of January 1, 2012, on a consolidated basis, there was approximately $1.3 billion of outstanding debt.

Bottom Line: The bad news is still filtering through the system for many of the nearly 50,000 shareholders of WEN and the stock appears to be in a bearish trend currently. It should find a resistance level no lower than 4.69.

Add WEN to your stock watch list and look for signs of the stock to reach a resistance level in the next couple of weeks. Each time the stock has reached a resistance level it has gathered momentum and gained as much as 30% more than once in the last year.

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