Is Wendy’s Stock a Buy?

Dave Thomas famously named Wendy’s (NYSE: WEN) after one of his daughters, and the company’s pigtailed-girl logo has reached iconic status. The fast food franchise grew from a single Ohio burger restaurant in the 1960s to one of the top ten fast food chains in the world today. 

Wendy’s signature square hamburgers and Frosties are now served in over 6,500 of the company’s restaurants worldwide, and the fast food giant currently has a market capitalization of over $4 billion.

But WEN shares have struggled over the past few years. The stock is up just over 16% in the past 5 years, lagging well behind the S&P 500’s 55% 5-year return. 

Worse still, in a year where the market has rallied back, and many of the company’s competitors have rallied with it, WEN is down 2.6% year-to-date. 

That’s because the company’s sales have lagged behind analysts’ estimates. But Wendy’s 2nd quarter revenue and income both increased compared to last year. And the company has a 4.67% annual dividend yield. Wendy’s is also undergoing a technology and restaurant overhaul in an attempt to match changing customer preferences.

So is Wendy’s stock a buy?

Wendy’s Market Share Is Under 3%

Wendy’s is a fast food chain that sells everything from burgers and chicken sandwiches to breakfast items and even local cuisine in its international stores. While the company has a well-known brand, it currently only owns 2.3% of the fast-food market. Compare that to over 25% for McDonald’s and nearly 37% for Starbucks, and it’s clear Wendy’s has a long way to go.

The company hopes to gain traction by redesigning its restaurants to meet current customer trends. With recent studies suggesting that 85% to 95% of customers are taking their food to-go, Wendy’s is focusing less on its dining rooms and more on quick and easy production and pickup.

A new kitchen redesign is underway that the company expects to increase kitchen output by 50%. Wendy’s is also introducing more ordering kiosks, mobile pickup slots, and a better system for handling digital orders. Management is betting that online orders and drive-thru pick-up will continue to increase.

Is Wendy’s a Good Stock To Buy Now?

Wendy’s released its second-quarter earnings on August 9 without much fanfare. Investors were concerned because the company’s revenue missed estimates, but only by less than 1%. Total revenue of $561.6 million still represented a 4.4% year-over-year increase. 

Net income of $59.6 million was a 23.7% increase from the same quarter in 2022. The increase in sales and earnings was due to higher demand, but it’s telling that same-restaurant sales were up. That’s a solid indicator of Wendy’s brand loyalty.

Increased revenue led to higher EPS, but it also affected the company’s cash on hand. Wendy’s has $133 million in Free Cash Flow so far this year, and the company has always been willing to return profits to its shareholders. That’s clear from the company’s annual dividend yield of 4.67%, amounting to $0.25 per share each quarter.

While sales are strong, the company’s P/E ratio is 24, a sign that WEN may be overvalued. But compared to the restaurant industry which averages around 22, and peers McDonald’s at 26 and Restaurant Brands, Inc. (Burger King) at 22, the stock’s valuation seems in line with the industry at this price point.

Is Wendy’s a Good Long-Term Stock?

In 2020-21 Wendy’s felt the brunt of the issues that lockdowns, staffing shortages, and heightened health restrictions caused. But a recent report highlighted optimistic expectations that the industry will recover and continue to grow by 5% a year through 2029.

Aside from the redesign of the company’s restaurants to focus on delivery and pickup, Wendy’s recently announced it will partner with Google Cloud to introduce Wendy’s FreshAI into the fast food marketplace. The company has already begun to experiment with AI to take orders and answer simple customer questions.

Wendy’s is focused on fully automating the drive-thru line, one of the most challenging tasks in the business. The company is also considering employing robotic technology to deliver orders from the restaurant to customers in the parking lot.

How Do Analysts Rate Wendy’s Stock?

Out of 28 analysts who have given ratings on the stock, 12 believe Wendy’s stock is a buy at this price, with 2 analysts predicting WEN shares will outperform the market over the next 52 weeks.

The highest forecast has the stock increasing over 44% to $31. But the median forecast has WEN going up 16.7% to $25 over the next year.

Fifteen analysts believe that the stock is a hold. While there’s only one sell rating on the stock, that analyst believes that WEN shares will underperform the market and that the stock will only rise 2.7% over the next year to $22.

Is Wendy’s Stock a Buy?

Wendy’s is an enduring brand that has become one of the top fast-food chains in the world. The industry was hit hard by the pandemic but most analysts expect a comeback, though its likely more customers will be in the drive-thru than the dining room.

The company’s recent earnings barely missed estimates but there are still plenty of reasons to be bullish about Wendy’s. The company has increased revenue, profits, and cash on hand and the stock pays a respectable dividend. Wendy’s is also making strides by changing its model and using technology to keep up with current market trends.

Wendy’s is a solid consideration for dividend investors and a strong consideration for investors looking to buy established brands that may be trading at a discount. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.