On Thursday, Evercore ISI maintained its In Line rating for Wendy's (NASDAQ:WEN) stock but included the fast-food company on its Tactical Outperform list.
The firm has increased its forecast for Wendy's second-quarter U.S. same-store sales (SSS) growth from 1% to 3%, surpassing the consensus estimate of 2.5%. This upgrade is the foundation for the near-term trading call.
The revision comes amid a period when same-store sales growth in the fast-food sector has plateaued at about 1%, with Wendy's competitors, McDonald's (NYSE:MCD) and Burger King, experiencing a slowdown.
In contrast, Wendy's has seen an acceleration in SSS growth by approximately 2-3 percentage points. Additionally, Wendy's is facing easier comparisons in the coming month, while its competitors are dealing with more challenging benchmarks.
Evercore ISI pointed out that Wendy's is in a favorable position as the market has already factored in concerns over McDonald's potential value offerings. Notably, Wendy's stock declined by 9% following a May 9th report by CNBC discussing McDonald's evaluation of a new $5 meal option. Despite this, Evercore ISI believes these market fears are now reflected in Wendy's stock price.
Currently, Wendy's is trading at a forward price-to-earnings (P/E) ratio of 17 times, which is significantly lower than its 10-year average, sitting two standard deviations below the norm. This valuation comes despite the company's recent performance and growth forecast adjustments.
The firm's maintained price target of $22.00 for Wendy's shares reflects the company's steady outlook and potential for near-term trading performance, as indicated by the inclusion on the Tactical Outperform list.
Wendy's stock performance and market valuation will continue to be monitored in light of the fast-food industry's broader trends and competitive dynamics.
InvestingPro Insights
In light of Evercore ISI's optimistic stance on Wendy's future performance, recent data from InvestingPro provides additional context for investors. Wendy's is currently trading at a forward P/E ratio of 18.06, which is close to the figure cited in the article. Its ability to maintain consistent dividend payments for 22 consecutive years and its high dividend yield of 5.6% as of the last dividend date are both noteworthy, particularly for income-focused investors. These InvestingPro Tips highlight Wendy's commitment to returning value to shareholders and its stability in the market.
Moreover, Wendy's has been identified as having high shareholder yield and has raised its dividend for three straight years, emphasizing its financial health and the management's confidence in the company's cash flow. While 12 analysts have revised their earnings expectations downwards for the upcoming period, Wendy's has demonstrated profitability over the last twelve months, which aligns with analyst predictions that the company will remain profitable this year. This resilience is crucial in a competitive sector like fast-food, where growth can be challenging to sustain.
For those looking to delve deeper into Wendy's financial health and stock performance, InvestingPro offers additional insights. With a total of 11 more InvestingPro Tips available, investors can make more informed decisions by considering factors such as stock volatility, trading positions, and liquidity ratios. To access these insights, investors are encouraged to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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