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WEN Stock Down 15% in a Year: Still Worth it? Buy, Sell or Hold?
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The Wendy’s Company (WEN - Free Report) stock registered a 14.6% drop in the past year, lagging the Zacks Retail - Restaurants industry’s 12.8% growth and the S&P 500’s 33.8% rise. This underperformance is largely due to higher labor costs, reduced customer count and increased capital expenditures. The company’s incremental investment in breakfast advertising has further pressured margins.
Despite these challenges, Wendy's shares have shown resilience in the past month, rising 3.7% compared with the industry's 3.4% growth. Solid same-restaurant sales, strong U.S. breakfast performance, and digital sales momentum have contributed to this recent improvement. WEN has outpaced other industry players like CAVA Group, Inc. (CAVA - Free Report) , up 1.3%, and El Pollo Loco Holdings, Inc. (LOCO - Free Report) , up 0.5%, in the past month.
The restaurant industry is showing positive momentum, supported by strong August sales figures. The Federal Reserve’s recent decision to cut interest rates for the first time in four years is also expected to benefit the sector, reducing costs and encouraging consumer spending. Wendy’s focus on menu innovation, technology upgrades and international expansion, along with strategic pricing and cost management, positions it to capitalize on these industry trends.
WEN Stock Performance Over the Past Year
Image Source: Zacks Investment Research
50-Day Moving Averages
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for WEN. The stock trades above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in WEN's financial health and prospects.
Favorable Valuation: A Positive Sign for Investors
Wendy’s is trading at a discount relative to the industry it belongs to, as shown in the chart below. WEN’s forward 12-month price-to-earnings ratio stands at 17.07x, lower than the industry’s ratio of 24.97X and the broader Retail-Wholesale sector’s 23.87x. It is also trading at a discount compared with the other industry players like Darden Restaurants, Inc. (DRI - Free Report) . The stock’s compelling discounted valuation and bullish technical signals highlight its continued appeal to investors.
Image Source: Zacks Investment Research
Key Factors to Enhance WEN Stock Performance
Robust Same-Restaurant Sales and Breakfast Performance: Wendy’s continues to impress investors with solid growth in same-restaurant sales, particularly in the breakfast segment. Its focus on product innovation and customer engagement positioned the brand well in a competitive market.
It maintained a competitive edge in the U.S. market during the fiscal second quarter of 2024, with stable dollar and traffic share in the QSR burger category. Increased sales in both the breakfast and late-night segments fueled this success. Meanwhile, the International segment achieved impressive system-wide sales growth of over 8%, supported by consistent same-restaurant sales growth and net unit expansion across various regions.
The company is gaining market share in the breakfast segment and continues to invest in this area. It expects breakfast sales growth to surpass sales during other parts of the day, positively impacting overall restaurant margins for Wendy's and its franchisees. For the full year, the company anticipates global same-restaurant sales growth of 1-3%. It optimized its investment strategy for 2024, extending its breakfast advertising efforts beyond 2025.
Strong Digital Sales Growth: The company has made significant progress in its digital initiatives, showcasing strong potential for further growth in digital sales and margin expansion. Increased frequency of transactions through digital channels has been a key driver in this success.
In the fiscal second quarter, the company reported growth in digital sales globally, with a more than 40% increase year over year. International markets, including the United Kingdom, Canada and APMEA, reported strong digital adoption. In the United States, digital sales surged 40% year over year, bolstered by initiatives to enhance mobile ordering and delivery channels.
On Aug. 07, 2024, the company announced a partnership with Palantir Technologies to enhance digital transformation and AI adoption within its Quality Supply Chain Co-op (QSCC) operations. This collaboration aims to create a fully integrated supply chain network that utilizes AI-driven workflows. The initiative is expected to generate cost savings and operational efficiencies, benefiting more than 6,400 Wendy’s restaurants across the United States and Canada.
Expanding Global Footprint: The company is committed to expanding its global presence, positioning its international business for future growth. During the quarter, the company achieved its development goals by opening 99 new Wendy's restaurants, marking more than a 20% increase compared with the first half of 2023. Looking ahead, Wendy’s has made meaningful progress in strengthening its sales growth plan for the latter half of 2024, setting the stage for accelerated unit growth in 2025 and beyond. Recent leadership changes and robust development plans further support its strategy for accelerating unit growth and enhancing operational performance.
Buy, Sell, Hold — WEN Stock?
Wendy’s has faced significant challenges, including rising labor costs and a decline in customer counts, which could negatively impact profitability. While the company plans to adjust menu prices and product offerings to counter these challenges, delays in implementation and competitive pressures might limit their effectiveness. It expects labor inflation to remain between 3-5% for the fiscal 2024, which could further strain margins.
However, Wendy’s demonstrated robust same-restaurant sales growth, particularly in the breakfast segment and continues to expand its digital sales channels. The company is committed to enhancing its global presence and has opened a significant number of new restaurants. These strategic initiatives position Wendy’s to leverage favorable industry trends and drive long-term growth. Current stakeholders are advised to maintain their position in this Zacks Rank #3 (Hold) stock. At the same time, potential new investors might consider waiting for more clarity on how Wendy's navigates these challenges before making investment decisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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WEN Stock Down 15% in a Year: Still Worth it? Buy, Sell or Hold?
The Wendy’s Company (WEN - Free Report) stock registered a 14.6% drop in the past year, lagging the Zacks Retail - Restaurants industry’s 12.8% growth and the S&P 500’s 33.8% rise. This underperformance is largely due to higher labor costs, reduced customer count and increased capital expenditures. The company’s incremental investment in breakfast advertising has further pressured margins.
Despite these challenges, Wendy's shares have shown resilience in the past month, rising 3.7% compared with the industry's 3.4% growth. Solid same-restaurant sales, strong U.S. breakfast performance, and digital sales momentum have contributed to this recent improvement. WEN has outpaced other industry players like CAVA Group, Inc. (CAVA - Free Report) , up 1.3%, and El Pollo Loco Holdings, Inc. (LOCO - Free Report) , up 0.5%, in the past month.
The restaurant industry is showing positive momentum, supported by strong August sales figures. The Federal Reserve’s recent decision to cut interest rates for the first time in four years is also expected to benefit the sector, reducing costs and encouraging consumer spending. Wendy’s focus on menu innovation, technology upgrades and international expansion, along with strategic pricing and cost management, positions it to capitalize on these industry trends.
WEN Stock Performance Over the Past Year
Image Source: Zacks Investment Research
50-Day Moving Averages
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for WEN. The stock trades above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in WEN's financial health and prospects.
Favorable Valuation: A Positive Sign for Investors
Wendy’s is trading at a discount relative to the industry it belongs to, as shown in the chart below. WEN’s forward 12-month price-to-earnings ratio stands at 17.07x, lower than the industry’s ratio of 24.97X and the broader Retail-Wholesale sector’s 23.87x. It is also trading at a discount compared with the other industry players like Darden Restaurants, Inc. (DRI - Free Report) . The stock’s compelling discounted valuation and bullish technical signals highlight its continued appeal to investors.
Image Source: Zacks Investment Research
Key Factors to Enhance WEN Stock Performance
Robust Same-Restaurant Sales and Breakfast Performance: Wendy’s continues to impress investors with solid growth in same-restaurant sales, particularly in the breakfast segment. Its focus on product innovation and customer engagement positioned the brand well in a competitive market.
It maintained a competitive edge in the U.S. market during the fiscal second quarter of 2024, with stable dollar and traffic share in the QSR burger category. Increased sales in both the breakfast and late-night segments fueled this success. Meanwhile, the International segment achieved impressive system-wide sales growth of over 8%, supported by consistent same-restaurant sales growth and net unit expansion across various regions.
The company is gaining market share in the breakfast segment and continues to invest in this area. It expects breakfast sales growth to surpass sales during other parts of the day, positively impacting overall restaurant margins for Wendy's and its franchisees. For the full year, the company anticipates global same-restaurant sales growth of 1-3%. It optimized its investment strategy for 2024, extending its breakfast advertising efforts beyond 2025.
Strong Digital Sales Growth: The company has made significant progress in its digital initiatives, showcasing strong potential for further growth in digital sales and margin expansion. Increased frequency of transactions through digital channels has been a key driver in this success.
In the fiscal second quarter, the company reported growth in digital sales globally, with a more than 40% increase year over year. International markets, including the United Kingdom, Canada and APMEA, reported strong digital adoption. In the United States, digital sales surged 40% year over year, bolstered by initiatives to enhance mobile ordering and delivery channels.
On Aug. 07, 2024, the company announced a partnership with Palantir Technologies to enhance digital transformation and AI adoption within its Quality Supply Chain Co-op (QSCC) operations. This collaboration aims to create a fully integrated supply chain network that utilizes AI-driven workflows. The initiative is expected to generate cost savings and operational efficiencies, benefiting more than 6,400 Wendy’s restaurants across the United States and Canada.
Expanding Global Footprint: The company is committed to expanding its global presence, positioning its international business for future growth. During the quarter, the company achieved its development goals by opening 99 new Wendy's restaurants, marking more than a 20% increase compared with the first half of 2023. Looking ahead, Wendy’s has made meaningful progress in strengthening its sales growth plan for the latter half of 2024, setting the stage for accelerated unit growth in 2025 and beyond. Recent leadership changes and robust development plans further support its strategy for accelerating unit growth and enhancing operational performance.
Buy, Sell, Hold — WEN Stock?
Wendy’s has faced significant challenges, including rising labor costs and a decline in customer counts, which could negatively impact profitability. While the company plans to adjust menu prices and product offerings to counter these challenges, delays in implementation and competitive pressures might limit their effectiveness. It expects labor inflation to remain between 3-5% for the fiscal 2024, which could further strain margins.
However, Wendy’s demonstrated robust same-restaurant sales growth, particularly in the breakfast segment and continues to expand its digital sales channels. The company is committed to enhancing its global presence and has opened a significant number of new restaurants. These strategic initiatives position Wendy’s to leverage favorable industry trends and drive long-term growth. Current stakeholders are advised to maintain their position in this Zacks Rank #3 (Hold) stock. At the same time, potential new investors might consider waiting for more clarity on how Wendy's navigates these challenges before making investment decisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.