Wendy's Earnings: We're Skeptical of Near-Term Targets but Appreciate New Investment Roadmap

We believe it's unlikely that no-moat Wendy's will meet its aggressive 2024 targets for 5%-6% systemwide sales growth, 3%-4% global comparable-store sales growth, and 100 basis points of restaurant margin expansion to 16%-17% in the United States. We agree with management that consumer health is improving, but we view ongoing price sensitivity, strong industry promotional activity, and a sharp difference in inflation between the already cheaper grocery channel and restaurants as pointing in a different direction than the firm's guidance. After digesting fourth-quarter results, which were modestly behind our own and FactSet consensus expectations, we plan to lower our $21 fair value estimate by a mid-single-digit percentage. Our 2024 assumption for $2.2 billion-$2.3 billion in sales is largely intact, though we plan to lower our $1.03 adjusted earnings per share target by about $0.10 to account for higher planned investments in breakfast marketing ($55 million over two years) and digital platforms ($15 million).