Critical Comparison: Wendy’s (NASDAQ:WEN) & Denny’s (NASDAQ:DENN)

Wendy’s (NASDAQ:WEN) and Denny’s (NASDAQ:DENN) are both small-cap retail/wholesale companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, dividends, analyst recommendations, profitability, risk, earnings and valuation.

Insider & Institutional Ownership

86.0% of Wendy’s shares are owned by institutional investors. Comparatively, 85.1% of Denny’s shares are owned by institutional investors. 17.0% of Wendy’s shares are owned by insiders. Comparatively, 4.2% of Denny’s shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Wendy’s and Denny’s’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Wendy’s	8.43%	125.74%	3.88%
Denny’s	2.24%	-60.26%	4.19%

Analyst Recommendations

This is a summary of recent ratings for Wendy’s and Denny’s, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Wendy’s	5	17	4	1	2.04
Denny’s	0	6	2	0	2.25

Wendy’s presently has a consensus target price of $10.59, suggesting a potential upside of 25.03%. Denny’s has a consensus target price of $5.96, suggesting a potential downside of 4.03%. Given Wendy’s’ higher possible upside, analysts clearly believe Wendy’s is more favorable than Denny’s.

Risk & Volatility

Wendy’s has a beta of 0.39, suggesting that its share price is 61% less volatile than the S&P 500. Comparatively, Denny’s has a beta of 1.43, suggesting that its share price is 43% more volatile than the S&P 500.

Earnings and Valuation

This table compares Wendy’s and Denny’s”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Wendy’s	$2.25 billion	0.72	$194.36 million	$0.94	9.01
Denny’s	$452.33 million	0.71	$21.57 million	$0.20	31.08

Wendy’s has higher revenue and earnings than Denny’s. Wendy’s is trading at a lower price-to-earnings ratio than Denny’s, indicating that it is currently the more affordable of the two stocks.

Summary

Wendy’s beats Denny’s on 11 of the 15 factors compared between the two stocks.

About Wendy’s

The Wendy’s Co. engages in operating, developing, and franchising a system of quick-service restaurants. It operates through the following segments: Wendy’s U.S., Wendy’s International, and Global Real Estate and Development. The Wendy’s U.S. segment includes the operation and franchising of Wendy’s restaurants in the U.S. The Wendy’s International segment is involved in the operation and franchising of Wendy’s restaurants in countries and territories other than the U.S. The Global Real Estate and Development segment focuses on real estate activity for owned sites and sites leased from third parties. The company was founded by R. David Thomas on November 15, 1969 and is headquartered in Dublin, OH.

About Denny’s

Denny’s Corp. engages in the operation of restaurants and franchised, and licensed restaurants. It operates through the Denny’s and Other segments. The Denny’s segment includes the results of all company and franchised and licensed Denny’s restaurants. The Other segment refers to the results of all company and franchise restaurants. The company was founded by Harold Butler and Richard Jezak in 1953 and is headquartered in Spartanburg, SC.