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Why Wendy's Stock Withered on Wednesday

Source The Motley Fool

Key Points

He set a neutral recommendation, but his analysis highlighted several negatives.
A major one was the erosion in the company's fundamentals.
10 stocks we like better than Wendy's ›

Wendy's (NASDAQ: WEN) stock has generally traded down since an apparent plan to take the company private was abandoned in late August. On Wednesday, an analyst initiated coverage of the fast-food purveyor's stock with a rather lukewarm take, which didn't help improve investor sentiment -- the company's stock fell by nearly 6% that trading session.

Not a better burger

Well before market open that morning, Seaport Global Securities formally began its tracking of Wendy's stock. Analyst Eric Gonzalez rated the veteran fast food purveyor's equity a neutral, and not only because of that scotched go-private effort.

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Person looking at laptop screen with head in hands.

Image source: Getty Images.

According to reports, Gonzalez waxed bearish about the company's fundamentals, writing that they are falling more quickly than at any time in its long history. The numbers back up this assertion, as Wendy's same-restaurant sales plummeted by 7% year over year in the company's most recently reported quarter. Customer traffic into the restaurants was also down notably, by 12.5%.

Other factors also make the prognosticator neutral on Wendy's equity. He pointed out that the company recently cut its quarterly dividend (to $0.07 per share), and speculated that sales won't reverse course in either the current (third) quarter or the final frame of this year.

A tough business these days

Current food-service trends in the U.S. don't favor Wendy's. Many diners favor healthier fare. Meanwhile, there are many burger-slingers competing for the consumer dollar. On top of that, aggressive discounting is hardly doing wonders for the fundamentals of sector players.

This one just doesn't seem to be finding its niche, and given that, I think there are more promising sector stocks.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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