McDonald's Vs. Wendy's: Who Cooked Up Tastier Comps In Q4?

McDonald's Corporation MCD is in the early stages of a multi-year turnaround, while Wendys Co's WEN free cash flow is attractive, Stephens said on Friday.

McDonald's Improving- Wendys Seeing Positive Trends

Previewing the fourth quarter results, analyst Will Slabaugh said McDonald's has likely seen an improvement in the US in November and December after a slow start. The analyst attributed the positive turn to the growing traction from ADB 2.0, various localized value promos and a general lift in the burger category.

Meanwhile, Stephens noted Wendy's is seeing modestly positive trends, driven by a continuation of "4 for $4" strength, the revamped core chicken sandwich launch, innovative Sriracha Chicken LTO and a broader pick up in the burger category. The firm is increasingly confident of Wendys' recent guest count growth continuing.

Looking at McDonald's global operations, Stephens expects positive comps with high growth and foundational/corporate markets leading the way. This, according to the firm, will allay concerns of investors, who were bracing for negative U.S. comps and worried about the trajectory heading into another tough Q1 overlap.

Lowering U.S. Comps Estimate for McDonald's, Raising for Wendys

Stephens lowered its fourth quarter U.S. comps estimates for McDonald's to -1 percent from 0 percent, although it's still above the consensus estimate of -1.6 percent. Banking on lower cost of goods sold, the firm bumped up its fourth quarter earnings per share estimate to $1.41 from $1.39. The 2016 estimate is nudged up to $5.58 from $5.56.

On the other hand, the firm raised its fourth quarter system-wide comps. estimate for Wendy's to 0.5 percent from -0.5 percent and maintained its earnings per share estimate at $0.09. The firm also lifted its full year comps estimate to 1.5 percent from 1.2 percent, but retained its adjusted earnings per share estimate at $0.41.

Stephens remains Overweight on McDonald's, with a $135 price target, while on Wendy's it stays Overweight but lifted its price target to $15 from $15, premised on attractive free cash flow opportunity.