On Thursday, Bernstein adjusted its stance on Wendy's (NASDAQ:WEN) shares, downgrading the fast-food chain from Outperform to Market Perform. The firm also revised its price target for Wendy's stock, bringing it down to $20 from the previous target of $24.
The decision by Bernstein to alter its rating for NASDAQ:WEN reflects concerns over the company's projections for same-store sales and unit growth. The firm highlighted a potential overestimation in the expected growth of Wendy's breakfast offerings and indicated that the same-store sales (SSS) growth model might be overly reliant on this aspect of the business.
Bernstein's analysis suggests that the majority of Wendy's traffic growth for the fiscal year 2024 is anticipated to stem from breakfast sales. Despite Wendy's commitment of a $55 million investment to bolster this growth, Bernstein remains skeptical about the company's goal of achieving a 50% increase in average weekly breakfast sales per unit over the next two years.
The lowered expectations come amid concerns of moderating growth in breakfast sales and heightened competition during that meal period. The firm expressed caution over Wendy's ability to meet its guidance without identifying additional growth drivers, especially in a challenging competitive landscape.
InvestingPro Insights
As Bernstein revises its outlook on Wendy's, investors may seek additional perspectives to gauge the stock's potential. According to InvestingPro, there are several factors that may influence Wendy's stock value. The company has shown a commitment to returning value to shareholders, as evidenced by an aggressive share buyback program and a noteworthy dividend yield of 5.6%. Additionally, Wendy's has been consistent with its dividend payments, having maintained them for 22 consecutive years, and even raised its dividend for the last three consecutive years.
When examining the financials through InvestingPro data, Wendy's holds a market capitalization of $3.67 billion USD and is trading at a P/E ratio of 18.28, which adjusts to a slightly lower 16.83 on a last twelve months basis as of Q4 2023. This suggests a reasonable valuation relative to near-term earnings growth, with a PEG ratio of just under 1 at 0.98. Despite the challenges highlighted by Bernstein, Wendy's has managed to maintain a gross profit margin of 35.59% over the last twelve months, indicating a solid ability to control costs relative to revenue.
For investors looking for additional insights, InvestingPro offers more tips on Wendy's, including analysis on earnings revisions, trading multiples, and liquidity. With 12 more InvestingPro Tips available, investors can delve deeper into the company's financial health and market position. To access these insights and enhance your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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