Wendy’s report wasn’t a hit with investors. Wendy’s beat analysts’ earnings estimates of $0.22 per share, as it posted earnings of $0.24 per share. However, revenue of $537.8 million fell short of the $541.3 million expected. Same-store sales were actually up for the quarter, but not up sufficiently to satisfy earlier projections. Wendy’s saw its sales jump 2.3% in the second quarter, but estimates were looking for a jump of 2.8%.
While Wendy’s last quarter performance was a bit lackluster, I’m still moderately bullish. Its share price has remained in a fairly tight range for the last three years. Yes, it had the huge slump that most businesses had back in March 2020, but aside from that, it’s been in that same $20 – $24 range. That kind of resiliency in these conditions is worth a second look.
Investor Sentiment Doesn’t Expect Much Trouble
There’s positive sentiment among Wendy’s investors; most Wendy’s investors aren’t looking for much trouble to emerge. Wendy’s has a Smart Score of 8 out of 10 on TipRanks. That’s the lowest level of “outperform,” which suggests that Wendy’s is likely to do better than the broader market.
Additionally, there’s good news to be derived from Wendy’s insiders. Insider trading at Wendy’s is fairly heavily buy-weighted, particularly in the last three months. While the pace of buying hasn’t been especially brisk, it has the distinct advantage of being universal. The last Sell transaction recorded among Wendy’s insiders was back in February.
Expanding to the full year is a slightly different story. Breaking down the numbers, Wendy’s insiders still bought more often than they sold, with 39 Buy transactions coming in against just 23 Sell transactions.
Wendy’s Still Has a Clear Value Proposition
Fast food vendors have been working to maintain their status as low-cost alternatives to eating at home. Wendy’s is pushing its combo bags, the “4 for $4” and the Biggie Bag, which offers slightly more options for an extra dollar. In a time when even dinner at Taco Bell can push $15, offerings like those draw consumer interest.
Naturally, we all know that recessions change consumer tendencies. This is particularly true for retail outlets; people focus on the necessities when recessions come around, jobs are at risk, and your stored stock of cash may be the cash you have to live on for a while. Yet, with food, exceptions are often made. Especially when food prices are inherently elevated, to begin with.
The old standbys about convenience and variety come into play, and sometimes, consumers just want something different. It’s why we don’t all subsist on a diet of beans and rice, though technically, it has nutrients sufficient to sustain life.
As a result, Wendy’s competitors are following suit. Burger King (QSR) has its Value Menu with over 20 items under $2.50 each. McDonald’s (MCD) has done likewise, ramping up its chicken options to offer a better deal to consumers.
It’s now quite possible for a family of four to eat at McDonald’s for around $20. That assumes, however, that the kids are the Happy Meal-type and not teenagers that will eat napkins if hard-pressed.
Additionally, Wendy’s is working the “something different” angle as well. Recently, it unveiled a new breakfast item geared to the back-to-school trade. The item in question: french toast sticks.
Available in either four or six-piece orders, and offered with syrup for a dip, it’s actually Wendy’s first breakfast sweet. It also demonstrates that fast food operations are taking breakfast more seriously as a whole.
Thus, we see that Wendy’s is clearly pushing to maintain its market share. It’s also working on expanding where it can, which in turn will make it fairly resistant to recessionary forces.
For those who still have jobs, the desire to save a few minutes a day on cooking will still be there. For those who find themselves looking, a dose of comfort food in the evening will certainly be called for.
Is Wendys Stock a Buy?
Turning to Wall Street, Wendy’s has a Moderate Buy consensus rating. That’s based on 11 Buys, 11 Holds, and one Sell assigned in the past three months. The average Wendy’s price target of $22.28 implies 7.4% upside potential. Analyst price targets range from a low of $18 per share to a high of $27 per share.
Conclusion: Wendy’s is Still a Hot and Fresh Stock
With a recession looming, or possibly here, consumer attitudes will shift. However, Wendy’s has already demonstrated resilience in its share price over the last three years alone. In addition, it has specific plans to bring in new items and provide better value for its price-conscious consumer base. Therefore, the company may have some room to run. As a result, I’m modestly bullish on the company because it’s likely to continue offering up low-cost meals for as long as there are hungry people.
