Though Wendy’s (NASDAQ: WEN) stock was cut in half during the dark days of February and March of last year, Wall Street quickly realized that convenient fast food would probably be towards the bottom of the list of things to be cut by hard-hit consumers who were tightening the proverbial belts. So back the stock roared and since this time last year, aside from last week’s pop and a little bit of weakness in Q1, it’s traded broadly sideways at its pre-pandemic levels. It’s not unreasonable for us to start wondering what kind of factors are in place that might give it the jolt it needs to kick on from here.
It might be unsurprising for a burger company, but there’s been no shortage of sizzle in Wendy’s shares lately. A meme-inspired 30% pop at the start of last week put them back in the headlines for all the right, or wrong depending on your perspective, reasons.
We’ve all heard of meme stocks like GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC), but the meme stock hunters have been casting their gaze further afield of late and one of their new beaus is the home of the fresh, never frozen beef burger. Though Wendy’s shares have for the most part retraced back to their pre-pop levels, they’re still trading close to all time highs and can offer any indecisive investors plenty of reliable reasons to become all-out carnivores.
Late last month, the folks over at Argus were out with an upgrade to Wendy’s shares, moving them to a Buy rating from Hold. They see the company and its shares continuing to enjoy tailwinds from a combination of new menu items, unit expansion and accelerated investments in the digital business. The ongoing vaccine rollout should continue to lend itself to a recovery in in-store traffic which, when combined with their reimaged restaurants and more efficient store formats, is a recipe for success. Analyst John Staszak summed up the opportunity by saying “we believe that the shares have room for further gains following the company's stronger-than-expected 1Q results and management's upwardly revised guidance".
These Q1 results, from the first half of May, should be well able to underpin a summer rally. Revenue was up 14% on the year, EPS was firmly in the black, and both were well ahead of what analysts were expecting. Management also raised forward guidance, with CEO Todd Penegor saying "we are increasing our 2021 financial outlook meaningfully across all key financial metrics, driven by an outstanding first quarter that underscores our continued momentum and the overall strength of our business. We remain committed to our three long-term growth pillars; significantly building our breakfast daypart, accelerating our digital business, and expanding our footprint across the globe, and continue to make great progress.”
Long Term Potential
Considering shares are still only trading up little more than 5% from their levels after the release, you can’t help but feel there’s some upside to be had in light of all this bullish sentiment. Cowen analyst Andrew Charles has also weighed in from the bull camp in recent weeks, highlighting the company’s share repurchase program and a higher trending dividend as two additional tailwinds that investors should be reaping benefits from.
Not to be outdone, Wells Fargo analyst Jon Tower called the company a top restaurant pick at the start of June, and put them high up in a list of fast food names that he sees outperforming the sector in a rising inflation environment.
So to sum up, we have on our hands a stock that’s running a solid share repurchase program, paying out a dividend that’s trending higher, is a favorite among the meme traders of Reddit, and is comfortably beating analyst expectations. This same stock has just had a double-digit pop to fresh all-time highs
and is in a stronger position financially than it’s been for quite some time. I think it’s fair to say there’s a better than even chance Wendy’s will find itself on an end-of-year list of 2021 winners.
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