Investment Thesis
Wendy's faces deteriorating fundamentals with revenue declining 3.1% and net income falling 15.1% YoY, combined with extreme financial leverage (23.84x D/E ratio) and dangerously thin interest coverage of 1.1x. The minimal equity cushion of $115.6M against $4.8B in liabilities creates substantial financial distress risk, despite positive free cash flow generation.
Strengths
- Generating positive free cash flow of $47.5M with 8.8% FCF margin
- Strong liquidity position with 1.83x current ratio and $298.7M cash reserves
- Operating margin of 12.0% remains reasonable for quick-service restaurant operator
Risks
- Extreme leverage of 23.84x D/E ratio with only $115.6M equity against $4.8B liabilities creates severe financial distress vulnerability
- Interest coverage ratio of 1.1x provides minimal safety margin; operating income barely covers debt service with no cushion for business deterioration
- Negative growth trajectory with revenue down 3.1% YoY and profitability declining faster at 15.1%, indicating margin compression and operational challenges
Key Metrics to Watch
- Interest coverage ratio trend - any decline below 1.0x signals insolvency risk
- Free cash flow sustainability - must remain positive to service $2.8B long-term debt
- Revenue trajectory reversal - current -3.1% YoY decline must stabilize or company faces debt refinancing challenges
Financial Metrics
Revenue
540.6M
Net Income
22.7M
EPS (Diluted)
$0.12
Free Cash Flow
47.5M
Total Assets
4.9B
Cash
298.7M
Profitability Ratios
Gross Margin
N/A
Operating Margin
12.0%
Net Margin
4.2%
ROE
19.7%
ROA
0.5%
FCF Margin
8.8%
Balance Sheet & Liquidity
Current Ratio
1.83x
Quick Ratio
1.81x
Debt/Equity
23.84x
Debt/Assets
97.7%
Interest Coverage
1.06x
Long-term Debt
2.8B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-10T07:53:37.733320 |
Data as of: 2026-03-29 |
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