Wendy’s stock price stabilizes after talk of rising prices

Wendy’s Company NASDAQ: WED shares traded up nearly 2% on Feb. 28 as the mid-cap fast food company said it would not raise prices during periods of high demand.

The breakthrough came after Wendy’s CEO Kirk Tanner said on the fourth-quarter earnings conference call: “Beginning in 2025, we will begin testing more advanced features such as dynamic pricing and daypart offerings along with menu changes AI-enabled and suggestive suggestions.” sale.”

In other words, charge higher prices at peak times of the day.

Cold welcome for rising prices

The news was not well received on social media.

A Reddit post said: “Wendy’s, like Ticketmaster, is planning to test “Dynamic Pricing” on their menu during peak periods in 2025. So arriving during a busy lunch or dinner? Expect ‘Surge Prices’ on your food like it’s Uber.”

Uber Technologies Inc. NYSE:UBER introduced high pricing in 2012, charging higher prices for rides during peak times of the day.

New York City implemented a similar system in 2023, charging higher “congestion pricing” at toll booths for cars and trucks entering the city during peak auto traffic periods. Movie theaters and airlines also use a version of price gouging.

Tanner made his remarks in the context of the new technologies the company is rolling out.

“We plan to invest approximately $20 million to implement digital menus across all U.S. corporate-operated restaurants by the end of 2025 and approximately $10 million over the next two years to support digital menu improvements for the global system.” , he has declared. .

Wendy’s Driving “Immediate Benefits”

He added that Wendy’s expects digital menu boards “will bring immediate benefits in order accuracy, improve staff experience and sales growth through upselling and consistent merchandising execution.”

Tanner’s remarks led to the hashtag #BoycottWendys on the social media platform The restaurant sector will change for the worse and prices will never go down. #BoycottWendys,” one X user wrote.

Wendy’s stock fell following the earnings report and is trading down 3.81% on a monthly basis. It regained some ground last week, but that’s more likely due to value-oriented investors snapping up the stock, rather than the market cheering the company’s about-face on the price surge.

Wendy’s stock may be overvalued

Wendy’s is tracked in the SPDR S&P MidCap 400 ETF Trust NYSEARCA: MDY. While the stock has lost ground over the past year, falling 12.57%, it still has a higher forward P/E ratio than its index.

Wendy’s 12-month forward P/E is 18.5, compared to the midcap 400 index’s forward P/E of 15.2. This suggests that Wendy’s shares may be overvalued relative to the broader mid-cap market, indicating potential concerns about future earnings growth or market sentiment.

According to stock ratings from analysts at brokerage Charles Schwab, market sentiment on Wendy’s is negative, with that outlook declining over the past week.

According to Schwab, sentiment is a measure that incorporates significant news and events into the price of a security. Market sentiment views changes in stock prices through the lens of its broader history, earnings reports and performance relative to the market. It can be an indicator of future performance.

Slowing sales growth

Wendy’s is much smaller than larger fast-food rivals, particularly McDonald’s Corp. NYSE: MCDtracked among consumer discretionary stocks in the S&P 500 Index.

While smaller companies can often see faster sales, earnings, and price increases than their larger counterparts, Wendy’s growth has been slow. In part, that’s because it’s an established company, not a newcomer, that is growing revenue at a rapid pace.

Wendy’s year-over-year revenue and earnings growth has slowed over the past four quarters. Wall Street recently revised down its earnings expectations for 2024 and 2025.

The bottom line is: Tanner’s casual statement about raising prices was probably just a bad move from a public relations perspective, not something with a lasting effect that will drive revenue dramatically lower.

Can Wendy’s Breakfast Save the Day?

The company has already struggled to grow revenue again and is focusing on breakfast as a time slot that could attract more customers.

Argus analyst John Staszak has a “buy” rating on the stock, saying: “We expect Wendy’s to benefit from unit expansion, strong international growth and investments in its digital business. We also expect its focus on breakfast menus to increase same-store sales.”

Wendy’s analyst forecasts at MarketBeat show a consensus view of “hold” with a price target of $22.70, an upside of 23.04%. This is a sign that Wall Street doesn’t see the stock as struggling amid the price surge and social media chaos.

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