Wendys Co WEN reported its 1Q results ahead of expectations.
RBC Capital’s David Palmer maintained 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 Wendys same store sales growth was likely to slow, in-line with the industry, in April, expecting the April fast food industry same store growth to come in at about one percent, after rising 3.5 percent in 1Q.
Value & Quality
RBC Capital’s recent proprietary research with Mission Measurement suggests that Wendys 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.”
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