Here's Why Investors Should Retain Wendy's (WEN) Stock Now
The Wendy's Company WEN is likely to benefit from digital efforts, Breakfast daypart offerings and unit expansion initiatives. In the past three months, shares of Wendy's have gained 21.8% compared with the industry’s 10.3% growth. However, inflationary pressures and supply chain challenges are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s has been focusing on digitalization to drive growth. During third-quarter fiscal 2022, the company had nearly 9.5% of its sales coming through digital channels in the United States and approximately 15% in international markets. This was driven by gains in delivery and mobile ordering sales and several successful promotions. Since the company launched Wendy's Rewards program app, downloads have increased. The company has been witnessing higher average checks. The company emphasized on expanding its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost digital business and drive growth.
Wendy’s focuses on Breakfast daypart Offerings to drive incremental sales. During the fiscal third quarter of 2022, the company reported strong breakfast performance in the United States and Canada. The company has been benefiting from its marketing, high-quality offerings, repeat ordering and high customer satisfaction levels. Also, it stated the benefits of the launch of French Toast Sticks. The company expects the breakfast business in the United States to accelerate in 2022 by roughly 10%. By the end of 2022, it anticipates average weekly U.S. breakfast sales to be roughly $3,000 per restaurant. It remains optimistic on the back of the $3 croissant promotion. For 2022, the company has set aside $16 million with respect to its global investment in breakfast advertising.
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Wendy’s is steadfast in expanding its presence globally. To promote new restaurant development, the company provided franchisees with certain incentive programs for qualifying new restaurants, including technical assistance fee waivers and reductions in royalty and national advertising payments. During the nine months that ended Oct 2, 2022, the company and its franchisees added 131 net new restaurants across the Wendy’s system.
The company’s international business is poised to be a growth driver in the days ahead. During the third quarter of fiscal 2022, the company revealed that its development plans are on track and the long-term opportunity in the U.K. remains fast. During the quarter, the company opened 25 new restaurants in the United Kingdom. Also, it re-evaluated the development commitment by REEF Kitchens and anticipates that REEF will open 100 to 150 delivery kitchens (primarily in Canada and the U.K.) by 2025-end. The company stated that it has a robust pipeline and is on track to achieve its target of 2-2.5% net unit growth in 2022.
Concerns
Wendy’s has been continuously shouldering increased expenses, which have been detrimental to margins. During the fiscal third quarter, the company-operated restaurant margin came in at 14.3% compared with 14.4% in the year-ago quarter. The downside was primarily due to higher commodity and labor costs, a decline in customer counts and increased investments (to support the entry into the U.K. market). However, this was partially offset by a higher average check. The company anticipates the inflationary pressures on labor and commodity price to continue throughout the remainder of 2022.
Supply chain challenges and a challenging macro environment are persistent concerns for the company. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Wendy’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. TGLS, Wingstop Inc. WING and Chuy's Holdings, Inc. CHUY.
Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 17.1% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.
Wingstop carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have decreased 16.6% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 2.3% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 11.2%, respectively, from the corresponding year-ago period’s levels.
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The Wendy's Company (WEN) : Free Stock Analysis Report
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
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Wingstop Inc. (WING) : Free Stock Analysis Report
