This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Wendy's Pursues a Delicate Balance

NEW YORK ( TheStreet) -- Shares of fast-food giant Wendy's (WEN - Get Report) are still struggling to find solid footing ever since Morgan Stanley analyst, John Glass, lowered his rating on the stock to "Underweight" from "Equal-weight" on March 1.

While setting a $5.00 price target, Glass suggested that the company's restructuring efforts may take longer than investors expect. However, it would seem the company's actually on schedule. And if fourth-quarter earnings serve as indication, Wendy's plan to be "A Cut Above" should produce gains above what the Street expects.

Change We Can Believe In

It wasn't that long ago that Wendy's was fighting for an identity. Despite its strong tradition of offering good food at competitive prices, the company could never overcome the dominance of McDonald's (MCD). And things got heated when Chipotle (CMG) began to sizzle in the premium quick-service restaurant (QSR) segment. Wendy's was stuck in limbo. It could not beat McDonald's or Burger King (BKW) on price and brand competition. But it viewed itself as "A Cut Above."

From there, after years of underinvestment, the company decided on a program to remodel its stores to better compete with the likes of Panera (PNRA) and Chipotle. But it's not a new idea. McDonald's went through the same change years ago with its U.S.-based restaurants. And it's been successful to the extent that McDonald's is now considering doing the same on a global scale.

To that end, Wendy's recently said that it plans to remodel 20% of its U.S. restaurants by 2015. Out of the 6,500 locations that it has in North America, that means 1,300 stores will get facelifts. That's a pretty aggressive goal, which will require significant capital. The question, though, is how well can Wendy's convince the Street that revitalization efforts can boost traffic and profit margins?

Morgan Stanley doesn't think it can -- at least not at the pace to support a higher valuation. Granted, the company has not shown the innovative prowess of McDonald's. However, fourth-quarter earnings, which beat Street estimates by 1 cent a share, suggest that Wendy's is doing well enough. And although Glass cited stronger competition from McDonald's and Burger King as reason for the downgrade, Wendy's still posted in-line revenue.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
WEN $10.80 -0.78%
AAPL $126.10 -0.39%
FB $86.88 -0.04%
GOOG $522.53 0.13%
TSLA $276.95 2.90%

Markets

DOW 17,696.98 -60.93 -0.34%
S&P 500 2,072.58 -4.84 -0.23%
NASDAQ 4,997.6830 -15.44 -0.31%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs