The Zacks Analyst Blog Highlights:Wendy's, McDonald's, Yum! Brands, Burger King Worldwide and Novo Nordisk

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Oct 03, 2013, 09:30 ET

CHICAGO, Oct. 3, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Wendy's Co. (Nasdaq:WEN-Free Report), McDonald's Corp. (NYSE:MCD-Free Report), Yum! Brands Inc. (NYSE:YUM-Free Report), Burger King Worldwide Inc. (NYSE:BKW-Free Report) and Novo Nordisk (NYSE:NVO-Free Report).

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Here are highlights from Wednesday's Analyst Blog:

Wendy's Downgraded from Outperform

We are reverting to a Neutral recommendation on restaurant company The Wendy's Co. (Nasdaq:WEN-Free Report) from Outperform on mixed second-quarter 2013 results.

Why Back to Neutral?

While Wendy's second-quarter 2013 adjusted earnings, reported on Aug 7, 2013, grew year over year, mainly through effective cost control measures, the sales scenario remained sluggish. Sales missed the Zacks Consensus Estimate and grew just 0.7% year over year.

Comps were also soft in the quarter. Company-owned comps nudged up 0.4% in the quarter while franchised units saw a 0.3% rise in comps. The removal of breakfast items at certain restaurants marred comps by about 1%.

Restaurant companies are highly exposed to fluctuation in food costs. Beef represents almost 20% of Wendy's total food cost. Higher beef and chicken costs are expected to be more pronounced in the second half of 2013 and thus might restrict margin expansion.

Further, Wendy's will incur significant capital expenditure (capex) in the coming years in a bid to boost the re-imaging program. This will lead to lower free cash flow. The company estimates expenses of about $440 million–$500 million for store overhaul and openings from 2013 to 2015.

Although Wendy's has signed franchise development agreement for international growth, its peers – McDonald's Corp. (NYSE:MCD-Free Report) and Yum! Brands Inc. (NYSE:YUM-Free Report) – operate on a much larger scale. Also, Wendy's operates at a disadvantage relative to burger behemoths McDonald's and Burger King Worldwide Inc. (NYSE:BKW-Free Report), the scale of which supports greater advertising strength.

We believe the positive impact of multi-year turnaround plan, international expansion, extensive refurbishment of units, focus on franchising and dividend hike are reflected at current levels and there is little room for further upside. Wendy's currently has a Zacks Rank #3 (Hold).

NVO's Diabetes Portfolio Update

Novo Nordisk (NYSE:NVO-Free Report) has a strong presence in the diabetes care market. The company has one of the broadest diabetes portfolios in the industry. The company is working hard to develop its diabetes pipeline.

Novo Nordisk presented new data from a phase III study (DUAL I) on its type II diabetes candidate, IDegLira, at the annual meeting of the European Association for the Study of Diabetes (EASD). IDegLira is a combination of insulin degludec, Tresiba and Victoza, the once-daily human glucagon-like peptide-1 (GLP-1) analogue.

The DUAL I study showed a statistically significant reduction in blood sugar levels (HbA1c) compared to Tresiba or Victoza alone, with no weight gain and a low rate of hypoglycemia.

The effects of IDegLira on fasting and postprandial glucose levels were also positive, resulting in a substantial overall improvement in glycemic control versus Tresiba or Victoza alone. Data from the study revealed that less than 7% sugar level reduction was observed in 81% patients treated with IDegLira, 60% patients treated with Victoza and 65% patients treated with Tresiba.

The DUAL program consists of two phase IIIa studies, namely, DUAL I and DUAL II. DUAL II demonstrated that patients can realize benefits from each of the components in the combination product and reconfirmed the competitive profiles of Tresiba and Victoza.

Novo Nordisk's Diabetes Care segment recorded sales growth of 14% in the second quarter of 2013. Modern insulins generated strong revenues (up 15%) driven by NovoRapid (up 15%) and Levemir (19%). Victoza witnessed sales growth of 32%.

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