Wednesday, August 12, 2009

Wendy's / Arby's Group (WEN)

I first took notice of WEN on July 22nd when unusual call volume (around 10x normal levels) began setting off alerts. The next day, volume surged even higher. The spike in options volume preceded the company's quarterly earnings report by two and a half weeks.

WEN is attractive on several levels: strong and improving fundamentals, a great chart, and it is just getting noticed by analysts and the media.

Some of the highlights out of the quarterly report: swung to a profit compared to a loss a year ago, sees improving July sales, is on track to deliver $100 million in restaurant margin improvement at Wendy’s and $60 million in general and administrative savings by the end of 2011, commented on international expansion, and will introduce a breakfast menu in 2010.

Looking at the chart, we see a strong Channel Up. The stock trades above its 10, 50, and 200 SMA (all rising), with potential resistance points in the $5.50 to $5.60 range.

The Wendy's turnaround story is really just starting to get noticed. Barron's published a positive story in late June, and Cramer gave a positive opinion on WEN based on its valuation on Mad Money on August 10th.

WEN trading history:
July 22, wrote to open $5Aug Puts (.WENTA) for $0.55.
July 22, bought to open $7.50Nov Calls (.WENKU) for $0.10.
August 6, bought to close .WENTA for $0.25.

Current Position:
Long .WENKU ($0.10).

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