Earnings

Which is more compelling pick right now? – The Wendy’s Company (WEN), Terex Corporation (TEX)

The shares of The Wendy’s Company have increased by more than 5.24% this year alone. The shares recently went up by 2.37% or $0.4 and now trades at $17.28. The shares of Terex Corporation (NYSE:TEX), has slumped by -20.84% year to date as of 04/12/2018. The shares currently trade at $38.17 and have been able to report a change of 1.90% over the past one week.

The stock of The Wendy’s Company and Terex Corporation were two of the most active stocks on Thuday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 22.85% versus 37.11%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that WEN will grow it’s earning at a 22.85% annual rate in the next 5 years. This is in contrast to TEX which will have a positive growth at a 37.11% annual rate. This means that the higher growth rate of TEX implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. WEN has an EBITDA margin of 28.83%, this implies that the underlying business of WEN is more profitable. The ROI of WEN is 5.00% while that of TEX is 5.40%. These figures suggest that TEX ventures generate a higher ROI than that of WEN.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, WEN’s free cash flow per share is a positive 2.35, while that of TEX is positive 4.18.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for WEN is 1.80 and that of TEX is 2.30. This implies that it is easier for WEN to cover its immediate obligations over the next 12 months than TEX. The debt ratio of WEN is 4.81 compared to 0.81 for TEX. WEN can be able to settle its long-term debts and thus is a lower financial risk than TEX.

Valuation

WEN currently trades at a forward P/E of 25.30, a P/B of 7.29, and a P/S of 3.45 while TEX trades at a forward P/E of 11.67, a P/B of 2.58, and a P/S of 0.74. This means that looking at the earnings, book values and sales basis, TEX is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of WEN is currently at a -8.28% to its one-year price target of 18.84. Looking at its rival pricing, TEX is at a -18.18% relative to its price target of 46.65.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), WEN is given a 2.00 while 2.70 placed for TEX. This means that analysts are more bullish on the outlook for TEX stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for WEN is 6.22 while that of TEX is just 6.67. This means that analysts are more bullish on the forecast for WEN stock.

Conclusion

The stock of The Wendy’s Company defeats that of Terex Corporation when the two are compared, with WEN taking 4 out of the total factors that were been considered. WEN happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, WEN is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for WEN is better on when it is viewed on short interest.

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