Wendy's stock is poised to sizzle: analyst

·Anchor, Editor-at-Large
·3-min read

One of the newer members of the meme stock movement of 2021— Wendy's — has more opportunities to sizzle. 

That's the good word from Guggenheim analyst Gregory Francfort, who initiated coverage of Wendy's (WEN) on Tuesday with a Buy rating and $26 price target. At current prices, the analyst is looking for an approximate 20% upside move in shares of the square-shaped burger serving chain. 

Shares of Wendy's are up 5% year-to-date, giving back a good portion of the gains that happened in early June after the stock was swept up into meme stock frenzy seemingly out of the blue. 

"Our Buy rating is premised on too much pessimism on the sustainability of Wendy's market share gains. Wendy’s shares pre-COVID traded in a $20 -$24 range and the pandemic has helped support top-line market share gains for the brand (low double digit current two-year comps). The current share price of $23 per share suggests investors are overlooking all sustainability of the past 18 months’ success, creating an opportunity for investors to get constructive on the stock at these levels," Francfort explains. 

Francfort adds he is impressed by management and the quality of Wendy's asset base, and reasons that the stock doesn't deserve to trade at a deep valuation discount to McDonald's. The analyst is also one of the more bullish on the Street on Wendy's relatively new breakfast business, which CEO Todd Penegor tells Yahoo Finance is on track to reach $1 billion in sales.

"Wendy’s has made several forays into the breakfast business over the past 20 years, generally retrenching after 12-24 months amid lackluster results. This time around feels different. Management was more thoughtful about labor management, menu streamlining and avoiding significant new equipment capex to support the franchisee return math. We do not expect breakfast to hit similar levels of sales mix as McDonald’s has generated (20-30%) but if the brand can even just keep the sales channel in the 8-10% of sales range, it can be profitable for both franchisees and Wendy’s corporate on a sustained basis," Francfort says.

To be sure, the company has other tailwinds at its sails. First, Wendy's has been performing well.

Wendy's U.S. same-store sales in the first quarter surged 13.5%, powered by diners heading back out after getting their COVID-19 vaccine and trying the chain's new breakfast menu. Digital ordering and a push into more premium chicken sandwiches also lit a fire under first quarter sales.

Wendy's same-store sales internationally rose 7.9%. 

The company will report second quarter earnings on Aug. 11.

Further, Penegor tells us he is looking to have 8,000 Wendy's locations open globally by 2025. That would be up sharply from about 7,000 currently.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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