Wendy's Upgraded to Strong Buy - Analyst Blog

On Jul 9, 2013, Zacks Investment Research upgraded The Wendy's Co. (WEN) to a Zacks Rank #1 (Strong Buy) based on its upbeat outlook for the upcoming quarters backed by menu innovation.

Why the Upgrade?

Wendy's has been gaining traction since the beginning of the year primarily buoyed by its 'Right Price, Right Size Menu' initiative. Wendy's is now all set for a national rollout of its new Pretzel Bacon Cheeseburger in the upcoming quarter. The product has received a favorable response in the test run and is expected to provide this fast food operator with a shot in the arm.

The company had to resort to a series of initiatives to trigger comps. Emphasis on value menu as well as premium limited period offerings are expected to drive results this quarter. Wendy's is also taking steps to streamline its cost structure. These include removal of its breakfast operations at certain companies and franchise restaurants to do away with unprofitable morning daypart operations. In the upcoming quarters, Wendy's will benefit from a reduction in beverage costs owing to new agreements with two of its beverage suppliers.

Management also raised its full year earnings per share guidance to reflect the net cost savings from debt refinancing that took place in May 2013. Its adjusted earnings per share are now expected to be within the range of 20–22 cents per share, up from the prior expectation of 18–20 cents per share. The new adjusted earnings per share range represent an 18%–29% year-over-year increase.

Despite a sluggish industry sales environment, the company's earnings were decent in the first quarter, beating the Zacks Consensus Estimate and the year-ago earnings by 50%. The restaurateur is expected to report its second-quarter earnings on Jul 23, 2013. The Zacks Consensus Estimate for the second quarter stands at 6 cents per share, which represents about 20% jump in earnings on year-over-year basis.

Other Stocks to Consider

Some other play! ers which attained Zacks Rank #1 (Strong Buy) this week include Krispy Kreme Doughnut Inc. (KKD), Starwood Hotels & Resorts Worldwide Inc. (HOT) and Kite Realty Group Trust (KRG).