Why Wendy's Stock Wilted on Monday
Key Points
These only exacerbated the gloom following the company's dividend cut.
It announced this within its second-quarter earnings release last Friday.
It's safe to say that on Monday, investors weren't lining up at the counter to buy the hamburger that is Wendy's (NASDAQ: WEN) stock. Several new analyst takes on both the quick-service restaurant (QSR) industry generally and Wendy's specifically dampened investor morale on the company's shares. Wendy's closed the day down by more than 5%.
Not such a tasty stock
Before market open, Jefferies published a report citing data it had compiled on QSRs in July. Its findings indicate that same-restaurant sales for the industry ticked up 1.7% year over year, which was down roughly 10 basis points from the June percentage. More worryingly, overall traffic (i.e., the number of customers visiting) fell by 2.1%.
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Jefferies wrote in its report that the cyclospora outbreak negatively affected the business, as did weather disruptions from wildfires in Canada.
Also that morning, two analysts reiterated their rather lukewarm takes on Wendy's stock. BMO Capital's Andrew Strelzik maintained his market perform (hold, in other words) recommendation and $8 per share price target, while Logan Reich at RBC Capital maintained a similar rating with a $7 per share price target.
Morgan Stanley's Brian Harbour took it one step further, reducing his fair value assessment on the fast-food specialist to $5.50 per share from $7. He also kept his recommendation intact, in his case underweight (sell).
The Wright stuff?
These analyses come on the heels of Wendy's second-quarter earnings release, which was published last Friday morning. Although the company topped the consensus analyst estimate for revenue and edged past that for profitability, it announced a dividend cut that was not exactly greeted with enthusiasm by investors. It also withdrew its full-year guidance.
While the company's May announcement that it tapped turnaround artist Bob Wright as CEO was an encouraging development, he's got his work cut out for him. Wendy's feels like something of a tired brand, slinging burgers and other menu items that either aren't hot items, sold by many competitors, or both. I'd pass on owning its stock.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.