After when analysts determined Wendy’s Co could not lower its capital expenditures, it was downgraded to ‘neutral’ from ‘over weight’. There had been a reduction in price-target from US$ 12 to US$ 10.50.
Last year JP Morgan updated Wendy’s on 6th of August when it claimed the company’s fiscal 2017 and 2018 capital expenditure guidance of $150 million was too high if there would be fewer than 400 company stores by the end of fiscal 2016.
In press note release, JP Morgan wrote:
“We would have thought that capital expenditures could/should come down as we find it hard to articulate company operated U.S. unit expansion and more, so difficult to agree with US$20- US$25 million a year of company funding for franchisee capex in Canada. However, this appears to be the plan of the well-respected and newly appointed Chief Executive Todd Penegor, so expecting a near-term change in a just-announced strategy is unlikely in our view.”
Wendy’s is now expected to have a company-owned store count of 315 by the end of FY16, from the earlier estimate of 413 stores, based on the guidance, with higher franchise store count of 6,169, up from the earlier estimate of 6,083.
“Using the low point of (an unnecessarily high) capex level of US$80 million for both of F17 and F18 leaves us a ‘simple’ net income + D&A – capex FCF of US$141 million in F17 vs US$150–US$200 million guidance and US$156 million in F18 vs US$200– US$250 million guidance.”
