What is WEN's Intrinsic value?

Wendys Co (WEN) Intrinsic Value Analysis

Executive Summary

As of June 1, 2025, Wendys Co's estimated intrinsic value ranges from $11.27 to $23.34 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $20.18 +77.0%
Discounted Cash Flow (5Y) $16.94 +48.6%
Dividend Discount Model (Multi-Stage) $12.42 +9.0%
Dividend Discount Model (Stable) $11.27 -1.2%
Earnings Power Value $23.34 +104.8%

Is Wendys Co (WEN) undervalued or overvalued?

With the current market price at $11.40, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Wendys Co's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.7 1.14
Cost of equity 7.1% 11.3%
Cost of debt 4.6% 7.0%
Tax rate 25.3% 27.0%
Debt/Equity ratio 1.52 1.52
After-tax WACC 4.9% 7.5%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,246 (FY12-2024) to $3,252 (FY12-2034)
  • Net profit margin expansion from 9% to 9%
  • Capital expenditures maintained at approximately 3% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $17 $6,260M 78.3%
10-Year Growth $20 $6,882M 62.4%
5-Year EBITDA $4 $3,770M 64.0%
10-Year EBITDA $9 $4,742M 45.5%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 105.7%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 9.2%
  • Long-term growth rate: 1.0%
  • Fair value: $12.42 (9.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.3% (Low) to 7.1% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $6 to $16
  • Selected fair value: $11.27 (-1.2% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $444M
Discount Rate (WACC) 7.5% - 4.9%
Enterprise Value $5,878M - $9,101M
Net Debt $3,007M
Equity Value $2,871M - $6,094M
Outstanding Shares 192M
Fair Value $15 - $32
Selected Fair Value $23.34

Key Financial Metrics

Metric Value
Market Capitalization $2189M
Enterprise Value $5196M
Trailing P/E 11.43
Forward P/E 11.22
Trailing EV/EBITDA 6.45
Current Dividend Yield 925.02%
Dividend Growth Rate (5Y) 32.37%
Debt-to-Equity Ratio 1.52

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $6.05
Discounted Cash Flow (5Y) 25% $4.24
Dividend Discount Model (Multi-Stage) 20% $2.48
Dividend Discount Model (Stable) 15% $1.69
Earnings Power Value 10% $2.33
Weighted Average 100% $16.80

Investment Conclusion

Based on our comprehensive valuation analysis, Wendys Co's weighted average intrinsic value is $16.80, which is approximately 47.4% above the current market price of $11.40.

Key investment considerations:

  • Strong projected earnings growth (9% to 9% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 32.37%

Given these factors, we believe Wendys Co is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.