Critical Analysis: Wendy’s (NASDAQ:WEN) and Carnival (NYSE:CCL)

Carnival (NYSE:CCL) and Wendy’s (NASDAQ:WEN) are both consumer discretionary companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, dividends, profitability, risk, valuation, earnings and analyst recommendations.

Risk & Volatility

Carnival has a beta of 2.31, suggesting that its stock price is 131% more volatile than the S&P 500. Comparatively, Wendy’s has a beta of 0.39, suggesting that its stock price is 61% less volatile than the S&P 500.

Valuation and Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Carnival	$26.62 billion	1.15	$2.76 billion	$2.22	10.03
Wendy’s	$2.18 billion	0.57	$165.07 million	$0.66	9.92

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

Dividends

Carnival pays an annual dividend of $0.60 per share and has a dividend yield of 2.7%. Wendy’s pays an annual dividend of $0.28 per share and has a dividend yield of 4.3%. Carnival pays out 27.0% of its earnings in the form of a dividend. Wendy’s pays out 42.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Carnival	11.24%	26.11%	6.36%
Wendy’s	5.72%	115.31%	2.70%

Institutional and Insider Ownership

67.2% of Carnival shares are held by institutional investors. Comparatively, 86.0% of Wendy’s shares are held by institutional investors. 7.9% of Carnival shares are held by company insiders. Comparatively, 17.1% of Wendy’s shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

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

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Carnival	0	6	19	1	2.81
Wendy’s	5	13	2	0	1.85

Carnival currently has a consensus price target of $34.45, indicating a potential upside of 54.63%. Wendy’s has a consensus price target of $7.82, indicating a potential upside of 19.38%. Given Carnival’s stronger consensus rating and higher possible upside, analysts clearly believe Carnival is more favorable than Wendy’s.

Summary

Carnival beats Wendy’s on 13 of the 17 factors compared between the two stocks.

About Carnival

Carnival Corp. engages in the operation of cruise ships. It operates through the following business segments: North America and Australia (NAA) Cruise, Europe and Asia (EA) Cruise Operations, Cruise Support, and Tour and Others. The North America and Australia (NAA) Cruise segment includes the Carnival Cruise Line, Holland America Line, Princess Cruises, and Seabourn. The Europe and Asia (EA) Cruise Operations segment consists of AIDA, Costa, Cunard, and P&O Cruises (UK). The Cruise Support segment represents port destinations and private islands for the benefit of its cruise brands. The Tour and Other segment operates hotel and transportation operations of Holland America Princess Alaska Tours. The company was founded in 1972 and is headquartered in Miami, FL.

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.