Most of the leading fast-food chains have raised prices sharply over the past few years as a result of inflation and supply-chain issues. Higher prices have started to drive low-income customers away, as McDonald’s just reported in its latest earnings release.
Wendy’s (NASDAQ: WEN) reports its 4th quarter of 2023 earnings in just a few days, but the fast-food giant is expected to face some of the same issues. That’s why WEN is down 13.5% over the past year, with most of the stock’s sell-off happening in the latter part of 2023.
The company reported increasing revenue and profits in the 3rd quarter of that year, but revenue didn’t quite reach expectations. Wendy’s put it down to the economic pressures its customers face. Sales did pick up in the latter half of the quarter, however, as Wendy’s introduced several new items to its menu.
The company has made a strong push to increase breakfast and late-night traffic. Plus, its digital footprint has increased customer engagement.
There’s also hope that the company’s AI innovations will make a wider-scale impact on operations in 2024.
So where will Wendy’s stock be a year from now?
Why Did Wendy’s Stock Drop?
After reaching almost $24 per share in early 2023, WEN has fallen 18% in spite of 3rd quarter revenue of $550.6 million, up 3.4% from the prior year. Wendy’s missed the revenue estimate of $555 million by 0.76%.
Global same-store sales, a yardstick for customer loyalty, were up 2.8% in the quarter. US same-store revenue was up 2.2%, while internationally the number jumped by 7.8%.
Net income of $58 million was nearly 15% higher than the same quarter of last year because of higher revenue and better margins. That top line equated to a diluted earnings-per-share (EPS) of $0.28, which beat EPS estimates by 6.7%.
Increasing digital sales via the company’s app has been a major objective for Wendy’s, and digital sales jumped by 30% in the 3rd quarter. The Wendy’s loyalty plan now boasts 35 million members, which is 5% higher than last year.
The company offered $0.01 Junior Bacon Cheeseburgers through the app on National Cheeseburger Day, and the promotion was highly successful in driving sign-ups. The app now has 40% more monthly active users than it did last year.
Will Wendy’s Stock Bounce Back?
Several promotions had a significant effect in the 3rd quarter, and many of those were tied to new product launches.
Wendy’s rolled out a Loaded Nacho Cheeseburger and the Frosty Cold Cream Brew in the summer of 2023. It also launched a line of English muffin breakfast sandwiches designed to compete directly with McDonald’s popular Egg McMuffin sandwich.
Building a stronger breakfast menu is critical because that’s one of the growth avenues available to the company. The other is late-night. Wendy’s has pushed closing time back to midnight or beyond at many of its locations to serve the late-night crowd.
The company is also expanding the traditional way by adding 152 new restaurants in Q3 alone. Now with over 6,500 stores open internationally, Wendy’s is one of the top-ten fast food chains in the world.
The company is also at the forefront of the restaurant industry when it comes to AI. Wendy’s FreshAI was developed in partnership with Google Cloud, and it’s mainly targeted at streamlining drive-thru logjams. Early tests showed increased ordering speed using AI and 99% accuracy for orders, though a human had to intervene at times.
Though FreshAI is only currently in use at the company’s restaurants in its hometown of Columbus, Ohio, Wendy’s expects to roll the tech out gradually through 2024.
Where Will Wendy’s Stock Be 1 Year From Now?
Wendy’s stock will be 10% higher at $21.62 per share in 1 year according to the 27 analysts who cover it.
7 analysts rate WEN as a Buy, and the highest forecast has the stock jumping over 30% to $26 per share.
On the other hand, the lowest prediction is that Wendy’s share price will drop by 3% over the next year and end up at $19 per share.
Is Wendy’s Stock Undervalued?
The analysts aren’t ready en masse to call the stock a buy. That may be because there doesn’t appear to be an end in sight for the economic issues that have hurt Wendy’s sales. New products and AI-powered drive-thrus aren’t likely to have a near-term impact, either.
The company currently has a price-to-earnings (P/E) ratio of just under 21. That is less than the big-name fast-food players, McDonald’s and Starbucks, both of whom trade at multiples of 25x or higher.
One of the most compelling reasons to buy Wendy’s stock, however, is its dividend. It has a long history of paying and raising its dividend, and it now offers an attractive 5.14% annual dividend yield, meaning a $0.25 payout goes back to WEN shareholders each quarter.
The Bottom Line
Wendy’s is a well-established fast-food chain that has had its share of struggles over the past few years. The company is now trying to combat inflation by introducing more appealing products and using technology to make its operations more efficient.
It’s not clear when or if those initiatives will have a substantial impact on the company’s bottom line, which could be why analysts are reluctant to endorse the stock. Wendy’s underperformed the S&P 500 last year, and it appears on course to repeat that feat in 2024.
The dividend is certainly a selling point for investors who believe in Wendy’s long-term prospects. However, there are likely to be more attractive options out there for most dividend investors.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>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.