Company Reports

Wendy's announced that president and CEO Kirk Tanner will leave the company effective July 18 to become president and CEO of Hershey. Wendy's board of directors has launched a search for his replacement. CFO Ken Cook will serve as CEO in the interim.

We will discontinue analyst coverage of Wendy’s on or about July 14. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Wendy's is the second-largest quick-service restaurant (QSR) burger chain in the US behind wide-moat McDonald's, sporting a value proposition around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and decent cash-on-cash returns have underpinned mid-single-digit annual US revenue growth since 2019, with the firm prioritizing its breakfast business, unit development, and international expansion to drive its next leg of growth. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that the Wendy's brand could prove strong enough to make a small foray into emerging international markets. We still view success as unlikely in those markets where both wide-moat McDonald's and Burger King already maintain strong positions.

Wendy's reported first-quarter results that suffered from continued US traffic declines for quick-service restaurants, particularly those focused on burgers. Global systemwide sales declined 1.1%, pulled down by the US, which declined 2.6%. But international, with 8.9% growth, proved a bright spot.

Wendy's presented its updated strategy at its investor day to reinvigorate growth by focusing on fresh food, improving the customer experience, and accelerating unit growth domestically and internationally.

Wendy's is the second-largest QSR burger chain in the US behind wide-moat McDonald's, sporting a value proposition around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and decent cash-on-cash returns have underpinned mid-single-digit annual US revenue growth since 2019, with the firm prioritizing its breakfast business, unit development, and international expansion to drive its next leg of growth. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that the Wendy's brand could prove strong enough to make a small foray into emerging international markets. We still view success as unlikely in those markets where both wide-moat McDonald's and Burger King already maintain a strong position.

Wendy's is the second-largest QSR burger chain in the US behind wide-moat McDonald's, sporting a value proposition built around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and decent cash-on-cash returns have underpinned mid-single-digit annual US revenue growth since 2019, with the firm prioritizing its breakfast business, unit development, and international expansion to drive its next leg of growth. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that the Wendy's brand could prove strong enough to make a small foray into emerging international markets. We still view success as unlikely in those markets where both wide-moat McDonald's and Burger King already maintain a strong position.

The headline from no-moat Wendy's fourth-quarter earnings call was that the firm will cut its 2025 dividend to $0.56 per share from $1.00 in 2024 as it looks to reallocate capital toward strategic growth initiatives. The new payout ratio remains competitive at roughly 50% to 60% of earnings (in line with Wendy's larger peers), but the cut has naturally led to a reshuffling of ownership as dividend investors allocate their capital elsewhere. As we see it, this ownership shakeup has applied downward pressure to Wendy’s share price and has created a buying opportunity for opportunistic long-term investors with less desire for income. With positive quarterly results but underwhelming guidance largely offsetting—leading us with little impetus to change our $19.20 fair value estimate meaningfully—we view shares as cheap.

Wendy's is the second-largest QSR burger chain in the US behind wide-moat McDonald's, sporting a value proposition built around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and decent cash-on-cash returns have underpinned mid-single-digit annual US revenue growth since 2018, with the firm prioritizing its breakfast business, unit development, and international expansion to drive its next leg of growth. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that the Wendy's brand could prove strong enough to make a small foray into emerging international markets. We still view success as unlikely in those markets where both wide-moat McDonald's and Burger King already maintain a strong position.

No-moat Wendy's reported OK third-quarter earnings, but its decision to close roughly 140 underperforming stores in the US and light comparable sales growth (just 0.2% in the US) drove a sour market reaction after the release. We expect pretty limited change to our $19 fair value estimate as we balance a slew of largely offsetting factors—slight quarterly outperformance, time value, expected unit closures, and an intact long-term view, leaving shares trading in a range we'd consider fairly priced.

Wendy's is the second-largest QSR burger chain in the US behind wide-moat McDonald's, sporting a value proposition built around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and decent cash-on-cash returns have underpinned mid-single-digit annual US revenue growth since 2018, with the firm prioritizing menu development, augmented digital capabilities, and an uptick in unit growth as its key strategic priorities. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that the Wendy's brand could prove strong enough to make a small foray into emerging international markets—though we still view success as unlikely in those where both wide-moat McDonald's and Burger King already maintain a strong position.

No-moat Wendy's reported weak second-quarter results, pulling down its systemwide sales growth guidance by 150 basis points to 3% to 5% growth for the full year as guest traffic has proved weaker than expected. The firm's 3%-4% comparable sales growth guidance laid out in its fourth-quarter 2023 call always looked ambitious, as we outlined in a Feb. 15 note, so the pullback isn't entirely unforeseen. Nevertheless, we plan to trim our $20.50 fair value estimate by a mid-single-digit percentage as we take a harder look at our medium-term unit growth forecasts, with the combination of quotidian unit-level economics, a weaker financing environment for franchisees, and slowing consumer spending in the category suggesting that our prior 120 net store growth forecast in 2025 was a bit aggressive. We now expect the firm to add closer to 75 net units in that year, with proportionately slower openings in the US market also pushing into the outer years. Separately, we plan to lower our Uncertainty Rating for the company to Medium from High, consistent with our Quantitative Uncertainty Rating methodology.

Wendy's is the second-largest QSR burger chain in the US behind wide-moat McDonald's, sporting a value proposition built around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and decent cash-on-cash returns have underpinned mid-single-digit annual US revenue growth since 2018, with the firm prioritizing menu development, augmented digital capabilities, and an uptick in unit growth as its key strategic priorities. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that the Wendy's brand could prove strong enough to make a small foray into emerging international markets—though we still view success as unlikely in those where both wide-moat McDonald's and Burger King already maintain a strong position.

No-moat Wendy's reported decent first-quarter results against a tough backdrop, with digital sales soaring 30% annually and loyalty membership growing 40% to 6 million after a successful March Madness promotion. While online sales still comprise just 17% of total systemwide sales, progress is encouraging, and even incremental changes should help defend a restaurant economic model that has been challenged by surging inflation in commodity, labor, construction, and borrowing costs. Results were in line with our forecasts, and management maintained its full-year guidance, so we expect to lift our $20 fair value estimate by just a low-single-digit percentage, consistent with time value.

As we gear up for the release of first-quarter earnings, our top picks in the restaurant industry remain wide-moat McDonald's and wide-moat Starbucks, trading at 14% and 19% discounts to our $312 and $105 fair value estimates, respectively. While industry traffic has been depressed for two years, both brands boast strong digital platforms that allow them to defend transaction frequency without indiscriminate national discounting, and both benefit from scale-driven cost advantages that should allow them to meet the needs of the increasingly value-sensitive consumer without sacrificing financial performance. These are the two most important factors, in our view, that will distinguish the best and worst performers in our industry coverage over the coming years. The industry looks fairly priced in aggregate, trading at a 3% premium to our market-cap weighted fair value estimates. The aggregate figure masks a very bimodal return distribution: Brands like narrow-moat Wingstop (up 108% annually) and wide-moat Chipotle (74%)—which boast strong unit economics and have taken material industry transaction share—have materially outperformed brands like no-moat Wendy's (down 9%) and narrow-moat Papa John's (down 17%), which have not. Those top-performing brands are fully priced, trading at material premiums to our intrinsic valuation (163% and 52%, respectively), suggestive of meaningful execution risk.

Wendy's is the second-largest QSR burger chain in the U.S. behind wide-moat McDonald's, sporting a value proposition built around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and reasonably competitive cash-on-cash returns have underpinned mid-single-digit annual U.S. revenue growth since 2018, with the firm prioritizing menu development, augmented digital capabilities, and an uptick in unit growth as its key strategic priorities. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that Wendy's brand could prove strong enough to make a small foray in emerging international markets—though we still view success as unlikely in those where both wide-moat McDonald's and Burger King already maintain a strong position.

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).

On Jan. 18, no-moat Wendy's announced that Kirk Tanner will replace Todd Penegor as CEO, effective Feb. 5. We expect that the incoming CEO's New Year's resolutions will include a laser focus on turning around the firm's comparable-store sales performance, increased emphasis on Wendy's fledgling digital business, and prioritization of store development as smaller competitors are forced to pull back on development aspirations. We don't anticipate making any revisions to our $21 intrinsic valuation for the firm, nor our Standard Morningstar Capital Allocation Rating in light of the transition, particularly since the firm maintained its full-year 2023 guidance.

As we survey the U.S. restaurant landscape looking toward 2024, the largest, chained restaurants with durable cost advantages look best positioned to outperform. We expect industry growth to remain low—just 1.3% annually in real terms through 2025, versus a long-term average of 2.5%. The sharp slowdown is predominantly attributable to slowing consumption spending, with pressured U.S. consumers already limiting restaurants’ ability to further increase prices and likely driving an uptick in industry promotional activity.

Wendy's is the second-largest QSR burger chain in the U.S. behind wide-moat McDonald's, sporting a value proposition built around fresh and craveable products at competitive price points. The banner has benefited from a resurgence over the last few years, driven by the renewed launch of its breakfast platform, store reimaging, and strong value positioning. Stable same-store sales growth and reasonably competitive cash-on-cash returns have underpinned high-single-digit U.S. revenue growth since 2018, with the firm prioritizing menu development, augmented digital capabilities, and a renewed international push as its three key growth drivers moving forward. We continue to view international expansion as the least likely of the firm's initiatives to bear material fruit, but note that sizable development agreements in Asia-Pacific suggest that Wendy's brand could prove strong enough to make a small foray in emerging international markets—though we still view success as unlikely in those where both wide-moat McDonald's and Burger King already maintain a strong position.