Shares of Wendyâs Co. continued their post-earnings selloff on Wednesday, after a long-time bullish analyst recommended investors stop buying, citing concerns that price competition will grow more intense.
The fast-food chainâs stock
WEN,
fell 1.2% toward a fourth-straight loss in premarket trading, putting them on track to open at a 20-month low. The stock sank 6.8% in the three sessions since Wendyâs reported fourth-quarter results, to close Tuesday at the lowest price since June 22, 2022.
Analyst John Ivankoe at J.P. Morgan cut his rating on Wendyâs stock to neutral, after being at overweight for at least the past three years.
He also lowered his price target to $19 from $22, writing the stock is âlikely to remain rangeboundâ as competitive price and capital intensity picks up.
Ivankoe said many of the fast-food industryâs core consumer base is increasingly focused on value, now that grocery pricing is more than 4.5 percentage points cheaper than prices at limited-service restaurants (LSR) such as Wendyâs.
Keep in mind that Walmart Inc.
WMT,
said Tuesday in its fiscal fourth-quarter earnings report that food prices have come down in areas such as eggs, apples and deli snacks.
As a result, Wendyâs and its competitors, such as McDonaldâs Corp.
MCD,
and Yum Brands Inc.âs
YUM,
Taco Bell have shifted back to pre-COVID strategies, including deals for meals or single menu items.
Wendyâs stock keeps falling after earnings, and continues to underperform.
FactSet, MarketWatch
Another concern is the idea of âpeak calorieâ may be in order after decades of expansion, with âCOVID-era indulgenceâ being matched with the calorie-reducing impacts of anti-obesity drugs.
And despite Wendyâs push to go all-in on breakfasts, Ivankoe noted that the it hasnât been able to âdrive frequencyâ for breakfasts with its core customers. He believes Wendyâs goal to boost daypart sales by 50% by spending $55 million on breakfast advertising seems âaggressive.â
Read: Wendyâs is going all-in on breakfast ads, believing that, if you try it, youâll be back.
On the bright side, Ivankoe spoke positively of the Wendyâs stockâs dividend yield, which was 5.56% as of Tuesdayâs closing prices.
That compares with the yields for shares of McDonaldâs of 2.28%, for Yum Brands of 2.00%, for Burger King parent Restaurant Brands International Inc.
QSR,
of 3.04% and the implied yield for the S&P 500 index
SPX
of 1.44%.
With the downgrade, Ivankoe is now part of the majority on Wall Street. Of the 28 analysts surveyed by FactSet who cover Wendyâs, 20 are neutral, while seven are bullish and one is bearish.
