Stifel Upgrades Wendy's, Bullish On Breakfast And Digital Prospects

Stifel analysts met with Wendys Co WEN management team and left hungry for the stock.

The Analyst

Stifel analyst Chris O'Cull upgraded Wendy's from Hold to Buy with a price target lifted from $22 to $25.

The Thesis

Wendy's deserves credit for presenting a credible breakfast option across multiple fronts, O'Cull wrote in the note. The launch into breakfast offers franchisees a low break-even point coupled with simple operational execution and a focus on drive-thru orders. Breakfast also represents an opportunity for long-term profit accretion.

Granted, the chain known for its Baconator tried and failed in the past to conquer the breakfast segment. But this time around management learned from prior mistakes, including expecting franchisees to make large investments, a phased roll-out, and complex operations.

Wendy's is also investing in its digital and online operations, including online ordering, new delivery partners, and scanners set to be deployed by the end of 2019. Encouragingly, mobile orders are 20% higher in average check sizes and 50% to 60% higher for delivery orders.

O'Cull said Wendy's has a bold plan for international expansion and expects to see 10% or more unit growth through 2024. This should help lift international sales from around $1 billion in 2019 to $2 billion by 2024.

Price Action

Wendy's stock traded higher by 2.5% to $21.44 per share at time of publication.

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