Wendy's Development Long-Term Guidance Looks Positive After Year-End Results; Shares Fairly Priced

Given that no-moat Wendy's pre-released its fourth-quarter and full-year earnings in January, there was little in the backwards-looking results that upended our expectations. The firm reported ongoing strength in comparable store sales at home and abroad, with a modest uptick on a three-year stacked basis (relative to prepandemic) in both segments, suggesting remarkable sales durability considering macroeconomic headwinds. While 2023 guidance was conservative, with 6%-8% systemwide sales growth in line with our 7% estimate but $0.95-$1.00 in adjusted EPS missing our $1.07 forecast, we still expect to raise our $22 fair value estimate by a mid-single-digit percentage—consistent with an uptick in medium-term unit growth and royalty rates, and slightly lower capital expenditure needs than initially contemplated. We also plan to raise our Uncertainty Rating to High from Medium for the restaurant operator.