The Wendy’s Company (WEN – Analyst Report) posted better-than-expected third quarter 2015 results on Nov 4 with earnings and revenues beating the Zacks Consensus Estimate. Comps were impressive on the back of promotional offers and marketing activities taken by the company.
Meanwhile, the company provided a bullish outlook for full-year 2015. The share price of this restaurant operator had increased 4.5% on Nov 4 after the company posted its results.
Adjusted earnings came in at 9 cents and increased 28.6% year over year as a decline in expenses and improved margins made up for a decline in revenues. Meanwhile, transition to a predominantly franchised model and higher royalties and rental income contributed to the numbers. Though total revenue of $464.6 million declined 6.5% year over year, it was due to a reduction in the number of company-operated restaurants as a result of its system optimization initiative.
Wendy’s marginally revised its earnings, EBITDA and comps guidance for 2015, driven by strong year-to-date operating results and encouraging results from the 4 for $4 promotion that began in October. The company expects its earnings, EBITDA and comps in 2015 to be at the higher end of the previously announced range. (Read: Wendy’s Tops Q3 Earnings & Revenues, Guides Well for ’15)
Over the past four quarters, the company’s earnings have beaten the Zacks Consensus Estimate in two of the trailing four quarters. It has an average four quarter positive earnings surprise of 5.35%.
The momentum in Wendy’s shares has earned it a Zacks Momentum Style Score of ‘A.’ making it a good option for investors seeking significant gains. Year-to-date, share price of this Zacks Rank #2 (Buy) company has been up approximately 5.5%.
So What’s the Momentum Style Score?
The Momentum Style Score is an indication of the time to buy a stock to benefit from rising share prices. Nothing is more frustrating than watching a fundamentally sound or inexpensive stock, simply remain frozen and not move higher, or even stall or go lower after a price increase.
Finding the right momentum stocks is not a simple task due to market volatility, but if executed properly, momentum stocks can bring a hefty return for your portfolio. The Momentum component indicates when to enter or exit. The highest score is an A, so getting in on an A and out on a B or C could be a strategy for short term gains. For a more in-depth understanding, check out our Style Score System.
But investors should bear in mind that this is a speculative strategy and not meant for the faint of heart.
Where to Invest?
That said, we pair the Momentum score with a Zacks Rank of #1 (Strong Buy) or #2 (Buy), which as you probably know indicates stocks with high chances of outperforming the market over the next 1-3 months. One of the main factors driving the Zacks Rank is estimate revisions, so stocks with high ranks as well as high momentum scores (‘A’ or ‘B’) have even greater chances of short-term appreciation.
Besides Wendy’s, we have picked four stocks from the retail-wholesale sector primarily based on these two factors:
Based in Seattle, WA, Starbucks Corp. (SBUX – Analyst Report) is a roaster, marketer and retailer of specialty coffee worldwide. Barring the last reported quarter, Starbucks’ earnings have not missed the Zacks Consensus Estimate since the beginning of 2014, and the company has an average positive earnings surprise of 2.44% over the trailing four quarters. Meanwhile, revenues have been beating the consensus mark consistently over the trailing four quarters. The company has a momentum style score of ‘A.’
Sales growth at this coffee giant has been exceptional over the past two quarters driven by solid global traffic trends. Shares of this Zacks Rank #2 stock have had a good run this calendar year, gaining approximately 52.6% year-to-date compared with S&P’s growth of approximately 1%. This coffee giant is gaining momentum from its extensive global retail footprint, successful innovations, best-in-class loyalty program, digital offerings and rapid growth in the international markets.
Based in Syracuse, NY, Carrol’s Restaurant Group, Inc. (TAST – Snapshot Report) owns and operates more than 650 restaurants under the Burger King brand. The company’s earnings have beaten the Zacks Consensus Estimate in the trailing four quarters and currently it has a positive earnings surprise of 92.3%. Year-to-date, shares of this Zacks Rank #1 company have soared approximately 58%.
The upside reflects the company’s remodeling initiatives and continued expansion and marketing and promotional tactics. Owing to strong results in its recently reported third quarter, the company increased its comps and revenue guidance for 2015, marking the third consecutive quarter of increase. The company has a momentum style score of ‘A.’
Based in Vancouver, WA, Nautilus Inc. (NLS – Snapshot Report) operates as a consumer fitness products company in the United States, Canada, and internationally. The company’s earnings have beaten the Zacks Consensus Estimate in two of the trailing four quarters. It has an average positive earnings surprise of 16.96%. Its impressive performance can be attributed to demand for a number of its product offerings, continued focus on product innovation, margin discipline, and realizing operating leverage. Shares of this Zacks Rank #2 company have increased 29% year-to-date. The company has a momentum style score of ‘A’.
Based in Flint, MI, Diplomat Pharmacy, Inc. (DPLO – Snapshot Report) is an operator of an independent specialty pharmacy in the U.S. This Zacks Rank #2 company’s earnings have beaten the Zacks Consensus Estimate over the trailing four quarters with a positive average earnings surprise of 25.27%.
The upside reflects strong specialty pharmacy industry trends and of late acquisitions, particularly of Burman’s and BioRx that are creating revenue synergies. Driven by strong results, the company increased its financial outlook for the third consecutive quarter for 2015. Shares of the company have been up 24% year-to-date. The company has a momentum style score of ‘A.’
What Else Is Driving the Upside?
Wendy’s Company and the abovementioned stocks are interesting options for investors right now given their strong growth prospects and the year-to-date upside in the shares. However, apart from strong fundamentals, a favorable operating environment has also helped the companies to post better results. All these companies are grouped under the broader Retail-Wholesale sector.
We note that the holiday season is the time when retailers are on their toes, flooding the markets with offers and promotions. Since the season accounts for a sizeable chunk of their yearly revenues and profits, retailers will grab every opportunity to drive foot traffic.
Given the rebounding U.S. economy, the retail space is brimming with optimism. A gradual recovery in the housing market and manufacturing sector, along with an improving labor market and lower gasoline prices, are aiding the economy and playing a key role in raising buyers’ confidence.
We expect this positive sentiment to propel consumer spending. With consumers willing to spend more, retailers could hear their cash registers ringing this time.
In such a scenario, we believe that investing in the abovementioned companies would yield strong returns for your portfolio in the short term.
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