Stephens Remains A Wendy's Bull Despite Top-Line Miss, Says Chain Has 'Strong Underlying Fundamentals'

Wendys Co WEN reported fourth-quarter results Wednesday, with the fast food chain's earnings of 11 cents per share meeting Wall Street estimates, but sales of $309.2 million falling short of the $313.5 million analysts expected. 

The Analyst

Stephens' Will Slabaugh maintains an Overweight rating on Wendys' stock with a price target boosted from $19 to $20.

The Thesis

Wendys' mixed Q4 report was accompanied with 1.3-percent same-store sales growth, which was short of the 1.8 percent Wall Street analysts were expecting, Slabaugh said in a Friday note.

But the company deserves some credit for extending its streak of positive comps for the 20th consecutive quarter. The fast food restaurant chain benefited in Q4 from improving its value proposition — especially when it brought the Double Stack burger back to the "4 for $4" deal, Slabaugh said. 

Wendys highlighted early success in its delivery initiative through DoorDash and expects to add more delivery partners this year to boost its footprint, the analyst said. Mobile ordering also ramped in the quarter, and four out of five restaurants will be able to accept mobile orders by the end of the year, he said. 

Looking forward to 2020, Wendy's revised its free cash flow guidance from $275 million to $300 million, which is a 7-percent yield based on today's metrics, Slabaugh said. The higher guidance is "largely discounted" because of the Q4 comp miss, he said. 

"We remain buyers of WEN and believe its FCF yield gap vs. peers is unwarranted for what we believe are strong underlying fundamentals." 

Price Action

Shares of Wendys were trading flat ahead of Thursday's market open.

Related Links:

Where's The Beef? A Look Inside Wendy's Q3

Longbow Research: Wendy's Could Fall Short Of Consensus In Q4

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