Founded in 1969, The Wendy’s Company (WEN) is a quick-service restaurant chain through Wendy’s U.S., Wendy’s International, and Global Real Estate & Development segments. Of late, WEN has become a red-hot meme stock, with retail investors on Reddit taking a keen interest in the stock and driving its shares to new highs.
The subreddit r/wallstreetbets forum’s post has hyped the fast-food-joint as “the perfect stock” because of its signature products and “effective” social media presence. WEN’s price has surged 13.1% over the past three months and 9.9% over the past nine months. The stock hit its 52-week high of $29.46 on June 8.
The company’s strong business model, enhanced digital capabilities, and expanding global footprint should continue to drive significant growth going forward. Since WEN’s gains are not just a result of a social media hype, but also a recognition of its solid fundamentals, we believe this meme stock is worth the attention.
Here is what we think could shape WEN’s performance in the near term:
This month, WEN entered three strategic development agreements with Kusto Group and Global Investors Limited to bolster growth and expand its international presence in The Republic of Georgia, Uzbekistan and Kazakhstan over the next nine years. Given WEN’s signature menu items and exceptional customer service, this expansion across the Central Asia region should allow the company to further establish itself as an iconic global brand and drive business growth.
In May, WEN joined hands with Pringles to launch a spicy flavored chicken-inspired chip for fans to enjoy Wendy’s Spicy Chicken in a Pringles chip. The debut of this limited-edition fan-favorite menu item should boost WEN’s sales substantially in the coming months.
Also, this month WEN’s Wubba Lubba Grub Grub! teamed up with Adult Swim’s Rick and Morty for year two of their wide-ranging partnership. This collaboration will allow Rick and Morty fans to avail themselves of new show-themed mixes in more than 5,000 Coca-Cola Freestyle machines and a custom drive-thru experience on the series’ fifth season premiere on June 20. This strategic partnership should strengthen WEN’s brand value and significantly increase its customer base.
A $0.18 consensus EPS estimate for the current quarter, ending June 30, 2021, indicates a 50% improvement year-over-year. WEN’s EPS is expected to rise 29.8% in the current year and 14.9% next year. Also, WEN’s EPS is estimated to grow at a 18.5% rate over the next five years.
Analysts expect WEN’s revenues to rise 6.7% year-over-year to $1.85 billion in 2021. The Street expects its revenues to come in at $1.9 billion in 2022, up 2.5% from the same period last year.
WEN’s total revenue increased 13.6% year-over-year to $460.2 million in the first quarter, ended April 4, 2021, due primarily to an increase in franchise royalty revenue and higher sales at company-operated restaurants. Its company-operated restaurant margin was 17% for this period, compared to 10.1% in the prior-year period. The company’s operating profit grew 70.6% from its year-ago value to $83.1 million, while its adjusted EBITDA increased 35.4% year-over-year to $121 million. WEN’s net income amounted to $41.4 million, representing a 186.4% increase from the prior-year quarter.
Consensus Rating and Price Target Reflect Potential Upside
Of the 28 Wall Street analysts that have rated WEN, five rated it a Strong Buy, nine rated it Buy and 14 rated it Hold. The stock has a 1.66 average broker rating, indicating favorable analyst sentiment. Also, analysts expect the stock to hit $26.07 soon, indicating a potential 11.9% upside.
POWR Ratings Reflect Promising Outlook
WEN has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. WEN has a B grade for Momentum, which is consistent with the stock’s 13.1% returns over the past three months.
Also, in terms of Quality Grade, WEN has a B. The stock’s 46.2% trailing-12-month gross profit margin, which is 33.7% higher than the 34.6% industry average, is in sync with this grade.
Click here to see the additional POWR Ratings for WEN (Value, Stability, Sentiment and Growth).
The stock is ranked #20 of 45 stocks in the Restaurants industry.
If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.
Although WEN’s price jumped to a new high due to amateur traders on social media pumping up the stock, we believe its solid fundamentals and increasing global footprint should position it to maintain its momentum in the coming days. So, we think this meme stock could be worth betting on now.
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WEN shares were unchanged in premarket trading Friday. Year-to-date, WEN has gained 7.24%, versus a 14.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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