Wendy's (WEN) stock has gained nearly 20% this past month amid better-than-expected results for the third quarter and the impact of Donald Trump's election as president, while the S&P 500 has risen just about 4% during the same period.
This outsized rally by Wendy's stock to $12.86 leaves 3% downside risk to Goldman Sachs's $12.50 price target, compared to 7% upside potential for the firm's "buy"-rated names, analysts said in a note today.
Goldman consequently downgraded the stock to "neutral" from "buy."
"With shares trading near valuation peaks, we now see a balanced risk-reward," the analysts wrote.
The fast-food chain first introduced its 4 for $4 promotion in the 2015 fourth quarter, making near-term comparisons difficult, according to Goldman.
"Wendy's has also struggled to replicate similar success in the past, adding some execution risk," the analysts noted.
Separately, Credit Suisse increased its price target on Wendy's stock by $1 to $11.50 today, noting that the company should benefit from lower ground beef prices.
The firm also pointed to lower tax rates, improved clarity on the country's economic outlook, a reduced likelihood of minimum wage hikes and regulations, attractive long-term fundamentals and valuations in line with long-term averages as other potential positives for the restaurant industry. Negatives include weak comps, an oversupply of stores and rising interest rates, Credit Suisse said.
Credit Suisse has a "neutral" rating on the stock.
Shares of Wendy's were up slightly in early-afternoon trading on Tuesday.