Wendy's Is Well Positioned To Sustain Market Share Amid Stiff Competition, Analyst Says

Truist Securities analyst Jake Bartlett reiterated a Buy rating on the shares of The Wendy's Co WEN with a price target of $26.

WEN management acknowledges stiff competition from a dominant McDonald's Corporation MCD and Restaurant Brands International Inc QSR owned resurgent Burger King, but believes all three can be successful in the current environment, given an increasing sales pie and share gains from smaller competitors, said the analyst. 

The share gains, according to the analyst, are being driven by scale advantages, including technology investments (growth in digital, including use of data, and eventually AI-based ordering). 

The analyst noted that WEN does not plan on driving traffic with deep discounts and does not expect its competitors to, given the broad focus on rebuilding franchisee profitability.

Also Read: Wendy's Beats On Q2 Earnings, But Revenue Misses

With 1H23 marketing more focused on brand building and late night (relatively low spend), the analyst believes the heavy innovation and marketing cadence in 2H23 will help offset a shrinking check boost and potentially drive upside to 2H23 U.S. same-store-sales (SSS) estimation of +3.0%.

With menu price of at least 6% and wage and commodity inflation of 4%, even the high end of 2H23 restaurant margin guidance appears conservative, potentially driving upside to FY'23 estimation of 15.2%, added the analyst.

The analyst's price target of $26 is based on a target EV/EBITDA ('24E) multiple of 13.7x below WEN's 15.2x 3 year average, due to macro risks and a resurgent Burger King, discounted back 5 months.

Price Action: WEN shares are trading lower by 0.19% at $20.74 on the last check Friday.