Wendy's Stable Same-Store Sales Prompts 8% Price Target Hike By This Analyst

  • Stephens analyst Joshua Long reiterated an Overweight rating on the shares of The Wendy's Company WEN and raised the price target from $25.00 to $27.00.
  • The analyst's October channel checks suggested relatively steady momentum sequentially driven in part by strong media awareness and a focus on value through the Biggie Bag platform.
  • In November, Wendy's balance of price/value affordability remained a driver of underlying trends despite what the analyst believed was a relatively slow start to the month until the introduction of the new Italian Chicken Sandwich.
  • The analyst said the new product performed well into the December timeframe following its introduction.
  • For Q4, the analyst increased the domestic same-store sales estimate to +4% versus the consensus of +4.2%.
  • The analyst said that Wendy's realized commodity and labor inflation of nearly 15% and over 6%, respectively, during the recently reported Q3 period.
  • Although these figures remain elevated versus historical periods, they are a relative improvement versus Q2, which experienced 19% commodity inflation and 11%-12% labor inflation, the analyst cited.
  • Through November, the analyst is encouraged to see food costs stabilize (and in some cases move lower) across key input costs, including ground beef (representing ~20% of the Wendy's food cost basket) and chicken (representing ~20% of the cost basket).
  • On the labor side, the environment remains challenging, however the analyst's checks suggest a relative improvement in staffing levels for the industry.
  • Looking into December, the analyst added that Wendy's marketing calendar appears well-positioned to build upon underlying momentum through a balance of value offerings, items with price point affordability, and innovative extensions of popular menu platforms.
  • Price Action: WEN shares are trading lower by 1.92% at $22.20 on the last check Tuesday.
  • Photo Via Wikimedia Commons
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