Wendy’s – Intrinsic Value, Buy, and Sell Price
August 1, 2025
Wendy’s (a member of the fast-food restaurants pool) market price has dropped from $20 per share in November 2024 to less than $10 on July 31, 2025. What is going on to halve the market value in eight months?
This article updates the respective intrinsic value, buy, and sell points as derived from the article written in November 2021. Three and a half years ago, this author determined the following value points:
Book Value $2.45 per share
Intrinsic Value $11.00 per share
Buy Point $8.00 per share (25% safety margin to intrinsic value)
Sell Price $16.00 per share
When the article was written, it stated that the intrinsic value would increase by approximately $1 per share every two years based on the various parameters used to determine intrinsic value. Thus, assuming this is accurate, the current inherent value will be around $12.50 per share. A 25% discount to create a margin of safety with the risk involved puts the current buy price at $9.35 per share. Thus, an updated set of value points is warranted to validate this opportunity.
Recall, value investing is a systematic process of buying high-quality securities at a discount to intrinsic value and patiently waiting for the market price to recover to a reasonable point, and selling the security to earn a strong return on one’s investment.
It all starts with understanding Wendy’s book value.
Wendy’s Book Value
Book value is defined as shareholders’ equity divided by the number of shares outstanding, i.e., currently available in the market. Below is Wendy’s shareholders’ equity section at 03/31/25.
Shareholders’ Equity
Common Stock, $0.10 par value; 1,500,000,000 shares authorized; 470,424,000 shares issued; 195,846,000 shares outstanding $47,042,000
Additional paid-in capital 2,984,865,000
Retained Earnings 389,481,000
Common stock held in treasury, at cost; 274,578,000 shares (3,218,308,000)
Accumulated other comprehensive loss (72,841,000)
Total Stockholders’ Equity $130,239,000
Book value equals $130.239 million of equity divided by 195.846 million shares equals $0.67 each.
This should be a surprise to a reader of financial information. In general, Wendy’s has earned money during the last three years, and yet the book value decreased $1.78 from $2.45 per share to the current 67 cents per share. How did this happen?
On 09/30/21, total stockholders’ equity was $542,754 million with 221.3 million shares in the market. This equated to $2.45/share. Notice that the number of shares was 221.3 million. Over the last three and a half years, Wendy’s has bought back 25.5 million shares. It has paid $533 million for these treasury shares. This is an average of $21 per share. In addition, Wendy’s has paid out approximately $480 million in dividends.
During this same period, Wendy’s earned $667.5 million. Thus, the net change is a negative $350 million. Spread this across 195.8 million shares, and the book value drops $1.78 per share during this three-and-a-half-year time frame.
Buying back stock at market prices that are much higher than existing book value drives book value for remaining shareholders lower. In addition, paying out dividends over earnings will also reduce book value. In Wendy’s case, earnings did exceed dividends, which slightly improved book value; however, the repurchase of shares dramatically reduced the book value for the remaining shareholders.
Book value has very little correlation to intrinsic value.
Intrinsic Value
Intrinsic value refers to the true value of something. Value changes due to variables, conditions, parameters, and underlying costs. For example, if you walked into the grocery store, what would you be willing to pay for a loaf of bread? Well, it depends on several variables and parameters. Is there an adequate supply of bread for the consumers? Are you hungry? How big is the loaf of bread? How is it made? Flavor? So there is so much to consider when determining value. But in general, a loaf of bread, assuming a reasonable size, good flavor, and packaged appropriately, is worth $2.60 to $3.00.
This same approach is used in determining the intrinsic value of a security for a company. The larger the company, the easier and more confident the determination process to equate value, i.e., there are plenty of loaves of bread on the shelf, so supply issues don’t drive the price. The larger the company, i.e., market capitalization, the more likely the respective variables, conditions, and parameters are eliminated or discounted.
Wendy’s current market capitalization is about $2 billion. It has revenues approaching $1.8 billion and has made a profit every year for the last 15 years. Thus, this company is large enough that the law of large numbers eliminates unusual circumstances or variables that could dramatically impact intrinsic value.
Five key formulas are commonly used to derive intrinsic value. Almost all of the formulas utilize a discount rate to improve reliability with the results. Thus, the first step is to set a discount rate. From the report generated in November 2021, this author used a discount rate of 11.5%. Upon reflection, the rate used was too liberal. In the interim, the author has learned a lot about determining discount rates. For one thing, the Federal Reserve rate has increased by 2% since November 2021. The Federal Rate is a part of the formula. Secondly, the equity position of Wendy’s has decreased $200 million over the last six years due to the buy-back program. The current equity section is down to $260 million. A reduced equity position elevates risk. Furthermore, overall debt has increased $300 million in the same period.
Lastly, every pool of investments has a standard bearer. In the fast-food pool, McDonald’s is the standard bearer. Look at this comparison between the top two hamburger chains in the world:
. McDonald’s Wendy’s
Locations 40,000+ 7,300
Revenue $26 billion $2.3 billion *Includes the marketing fees to franchisees.
Net Profit $8 billion $200 million
Net Profit Rate 31%+ 11% *Adjusted to exclude the marketing fees.
Cash from Operations $9.5 billion $355 million
Assets $55 billion $5.0 billion
Liabilities $59 billion $4.8 billion
Equity ($4 billion) $200 million
Shares 715 million 196 million
When you compare the two entities, McDonald’s is a Goliath over Wendy’s. Even with a negative book value, McDonald’s intrinsic value is approximately $205 per share due to its strong earnings, cash flow, and net profit rate. McDonald’s discount rate is higher than four years ago, but only due to the higher Federal Reserve rate. McDonald’s discount rate is about 9.25 to 9.5%.
There is no doubt, Wendy’s is a much greater risk. There are some very positive key performance indicators for Wendy’s, which keep the discount rate reasonable and below 15%. They include:
- Positive net earnings for more than 15 years;
- Continuously increasing revenue for 15 years;
- Franchise fees are growing at more than 5% year over year.
Negative indicators include a lack of decrease in the debt portfolio and poor revenue segmentation in comparison to McDonald’s.
Revenue segmentation refers to the revenue streams model. McDonald’s model is key to their real estate portfolio, i.e., more than half of its profitability is from franchise lease agreements, whereas Wendy’s model has had zero growth in their franchise lease agreements. In effect, Wendy’s is reliant on their royalties over franchise leases, whereas McDonald’s focuses on leasing. There is greater security in the leasing arrangements over royalties.
Here is Wendy’s segmentation of gross profits:
*All values are in millions Revenue Costs Gross Profit
Traditional Sales $925.9 $783.2 $142.7
Royalties $626.0 $67.7 $558.3
Lease Arrangements $236.5 $127.4 $109.1
Wendy’s is franchise-fee driven. Royalties make up 69% of the gross profit. With McDonald’s, the franchise lease arrangements (rental profits) make up 51% of the gross profit. There is a clear and distinctive difference between the two business models. McDonald’s is more of a real estate operation, and Wendy’s is a fast-food operation. This greater reliance on royalties impacts the overall risk factor, which in turn affects the discount rate used to determine intrinsic value.
The overall average net earnings from the last five years are slightly less than $200 million per year. Using $200 million as the future average earnings with a growth rate of 2% and a discount rate of 15% and a 24-year valuation period, Wendy’s is worth approximately $1,471 million ($1.5 billion). This equals $7.51 per share as intrinsic value. Again, this assumes a more conservative 15% discount rate.
Using a much more complex net asset valuation formula and elimination of debt, which will not be explained here due to its involvement, the author derived an intrinsic value of $12.80 per share. Utilizing a dividend yield formula with a 7.5% minimum yield, the result is $11.33 per share. Other formulas derived results of $8.00 to $14.00, depending on the variables and parameters used.
Thus, there is a high level of confidence that Wendy’s intrinsic value is approximately $12 per share.
With intrinsic value established, a value investor can now determine the proper buy price.
Wendy’s Buy Point
With intrinsic value established, the next step for a value investor is to determine a buy price. The intrinsic value price is considered reasonable and objectively a neutral position as an owner of a security. Buy points are set to generate good returns from an investment. The key is to set a buy price that will allow the investor to earn a good return upon sale of the investment. There is a trick to this: set the buy point too low, and chances are the market price may never dip that low, and the value investor loses out on a good opportunity. Set the buy price too high, and the value investor will end up with reasonable returns but not good returns or a great return on the investment.
With that stated, what is a good buy price for Wendy’s?
First, let’s review Wendy’s market price over the last 40 years. Look at this line graph and focus on the last 15 years’ market price for Wendy’s stock.
Over the last 15 years, the price was a low as $4.00 and peaked in December of 2021 to $24.00 per share. Can the market price dip again to as low as $4.00 per share? Highly unlikely for several reasons. First, in the 2008 to 2014 time frame, the economy cycled through a recession driven by the real estate collapse. Secondly, in 2010, Wendy’s dividend was a mere 8 cents per share, making the dividend yield 2%. Earnings in 2010 through 2014 averaged $13 million per year.
Today, the current dividend yield is much greater at 5.5%. Earnings are averaging $200 million per year. Thus, the pushback against the price dipping too much further from the current $10 per share will get stronger as the price continues to decrease. It is highly unlikely the price will dip to less than $8 per share due to pure greed. At $8 per share and an annual dividend of $0.56 (56 cents) per share will yield an impressive 7% return on one’s investment.
Furthermore, there were 370 million shares in the market in 2013. Today, that has dropped to almost half, reinforcing the expectation of higher dividends per share.
When determining a buy price, one of the factors is creating a margin of safety tied to intrinsic value. As illustrated in the intrinsic value section above, intrinsic value was a low as $7.51 to as much as $14.00 per share. A value investor has to determine a strong, high level of confidence intrinsic value point to determine a buy price. Thus, the intrinsic value was set at $12 per share and is comparable to McDonald’s adjusted for volume, risks, and business model, as illustrated above.
Currently, 08/01/25, the market price is $9.96 per share, which is a 17% safety margin. In the article written almost four years ago, the author sought a 25% safety margin with setting a buy price. At the time of the writing of that article, the author didn’t take into consideration what happened with the market price 10 years earlier. Given consideration of what happened in the 2008 to 2014 time frame, a 17% safety margin is acceptable and reasonable.
Thus, a buy price of $10 per share provides a reasonable safety margin and provides a high level of confidence that the market price will not dip below $8 per share. Furthermore, the stock provides a good dividend yield and a considerable upside as an investment. The key is what a good selling price is and how long it will take to get to that price.
This site’s Value Investment Fund is going to make incremental purchases of Wendy’s in ever-increasing amounts if the price continues to drop.
Wendy’s Selling Point
There is no one single selling point. Value investors utilize a spectrum of sell points depending on time frames to generate good returns.
From the above graph depicting the historical market price, Wendy’s has never experienced a quick market price recovery. One of the fastest recoveries occurred in late 2016, going into 2017, whereby over six months, the market price improved $4 per share. Thus, it is highly improbable that a quick (at least $4/share) market price recovery will happen in the interim, especially given the poor results as reported in the first quarter of 2025. The most likely outcome is four years to recovery to $20 per share. It will take eight or more very good quarterly reports to provide the confidence investors desire to bid the price up.
Therefore, this is going to be a long-term hold position as a value investor. During this expected four-year hold, the investment will earn about $3.25 from dividends. Thus, if it takes four years to reach $20 per share and with dividends of $3.25 per share in the interim, the total return on a $10 investment will approximate $13.00 per share during this period. The annual return on the investment will be slightly greater than 23% which is this value investment’s strategy/goal.
However, if the recovery occurs quickly, as in two years, the return on the investment jumps higher to more than 45% per year.
On the flip side, if the investment takes six years to recover, the return on the investment drops to around 16% annually.
Based on the above outcomes, the sell point is $16 if attainable in two years, generating a great 30% per year return, and goes to $18 in three years. The four-year goal is $20. These selling points provide an excellent return on the investment.
Naturally, a value investor would ideally like to experience a quick one-year turnaround to $14 per share, earning a wonderful 45% return when taking into consideration dividends.
Below is a chart of desired selling points:
. Sell Point Gain Expected Dividends Total Return Annualized Return
One Year $14.00 $4.00 $0.56 $4.56 45%
Two Years $16.00 $6.00 $1.70 $7.70 32%
Three Years $18.00 $8.00 $2.70 $10.70 27%
Four Years $20.00 $10.00 $3.25 $13.25 23%
As stipulated in other articles on this site, the decision to continue to hold once the security achieves the financial sell point is based on other opportunities available and a re-evaluation of the financial status of Wendy’s at that time. Continued monitoring of quarterly results and the economy’s condition will trigger whether selling the investment is appropriate. But in the interim, patience is key.
Wendy’s – Book, Intrinsic Value, Buy, and Sell Points
In summary, the following are the respective value points for Wendy’s:
- Book Value $0.67/Share
- Intrinsic Value $12.00/Share
- Buy Point $10.00/Share
- Sell Point $20.00/Share
- Expected Hold Period 4 Years
- Anticipated Dividends $3.25/Share Minimum
Wendy’s has a higher risk factor than McDonald’s and is considered a mid-cap investment. There is a strong and likely probability that this investment will take years to generate a good return for the investor. The downside risk is minimal; it is highly unlikely the stock price will dip to $8.00 due to a good dividend yield and a good history of earnings. Although earnings are not strong, they do exist. Lastly, using Benjamin Graham’s formula for value, V=Earnings(8.5 + 2g), and with a 2% growth rate, Wendy’s value is $200M(8.5+4) or $2.5 billion. With 196 million shares, the value per share is approximately $12.75. Act on Knowledge.