Wendy's (WEN) Stock Higher on RBC Capital Upgrade
NEW YORK (TheStreet) -- Wendy's (WEN) - Get Report stock is rising by 4.37% to $9.56 in midday trading on Monday, following an upgrade to "outperform" from "sector perform" at RBC Capital this morning.
The firm cut its price target to $11 from $12 on the stock in light of a higher sales risk from McDonald's (MCD) growth.
However, Wendy's value offerings have boosted traffic, and should help shield it from competition, RBC Capital said in a note.
The quick-service restaurant company's same store sales likely benefited from its 4 for $4 promotion, which includes a Jr. Bacon Cheeseburger, chicken nuggets, fries and a drink, as well as lower discounting from competitors such as Burger King (BKW), according to the firm.
Wendy's is on its way toward 95% franchising by the fiscal 2016 second quarter, from 85% currently, but its overhead per system restaurant has remained near the high-end of peers, RBC Capital adds. The company's general and administrative expenses could be reduced through this re-franchising.
Separately, TheStreet Ratings team rates WENDY'S CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
We rate WENDY'S CO (WEN) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 38.6% when compared to the same quarter one year prior, rising from $29.01 million to $40.20 million.
- WENDY'S CO reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WENDY'S CO increased its bottom line by earning $0.31 versus $0.12 in the prior year. This year, the market expects an improvement in earnings ($0.32 versus $0.31).
- 35.63% is the gross profit margin for WENDY'S CO which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.21% trails the industry average.
- WEN, with its decline in revenue, slightly underperformed the industry average of 1.2%. Since the same quarter one year prior, revenues slightly dropped by 3.3%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: WEN