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The Wendy's Consumer Is Recognizing Improved Value And Quality

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The Wendy's Consumer Is Recognizing Improved Value And Quality

Wendys Co (NASDAQ: WEN) reported its 1Q results ahead of expectations.

RBC Capital’s David Palmer maintains an Outperform rating on the company, with a price target of $12.

Same-Store Sales

The analyst maintained the 2Q same-store sales growth estimate of 2.5 percent, marginally below the company’s full-year guidance of 3 percent.

Palmer cautioned, however, the Wendy's same-store sales growth was likely to slow in April, in line with the industry. The expectation was for the April fast food industry same-store growth to come in at about 1 percent, after rising 3.5 percent in 1Q.

Related Link: Wendy's Reverses Early Gains And Tumbles Following Q1 Beat

Value & Quality

RBC Capital’s recent proprietary research with Mission Measurement suggests that Wendy's has improved its value and quality scores.

“We believe the consumer is recognizing improved value and quality at Wendy’s and we will be watching to see if 2Q sales reaccelerate after a soft April,” Palmer mentioned.

The analyst expects Wendy’s US business to become highly franchised, at over 95 percent, over the next two to three years, with the company witnessing almost 100 percent free cash flow conversion and double digit total return.

The EPS estimate for 2017 has been marginally raised from $0.41 to $0.42, to reflect the “ongoing tax favorability and modest core business upside.”

Latest Ratings for WEN

DateFirmActionFromTo
Aug 2020Morgan StanleyMaintainsEqual-Weight
Jul 2020WedbushMaintainsOutperform
Jul 2020Morgan StanleyMaintainsEqual-Weight

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