wendy’s-was-a-meme-stock-now-it’s-something-bigger.

Wendy’s Was a Meme Stock. Now It’s Something Bigger.


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Wendy’s is seeing increased customer visits at a time when competitors are seeing fewer.


Justin Sullivan/Getty Images


Wendy’s

meme-stock status—and the gains it brought—didn’t last very long. Perhaps strong earnings can do the trick.

It wasn’t that long ago that Wendy’s (ticker: WEN) briefly became a meme stock. The shares traded as high as $29.46 on June 8 and finished the day up 26%, as traders in chat rooms talked it up. The stock started falling the next day, and 10 days later it was pretty much right back where it started. For every

GameStop

(GME) or

AMC Entertainment Holdings

(AMC) that finds its stock sustainably higher, there are a dozen other meme stocks that enjoy 15 minutes of stock-market fame before fading away.

Still, we’ve long been proponents of the notion that fundamentals will eventually win out. And with Wendy’s, that looks to be the case. On Wednesday, the company reported an adjusted profit of 27 cents a share, beating forecasts for 18 cents, on sales of $493.3 million, topping estimates for $461.63 million. It also raised its full-year guidance to a range of 79 cents to 81 cents, above expectations for 74 cents. Its stock finished the day up 3.7%, at $22.85, its biggest gain since May 14—excepting June 8’s rise, of course.

Even analysts who were feeling lukewarm about the stock walked away impressed. Stifel analyst Chris O’Cull, who has a Hold rating on Wendy’s shares, was “encouraged” by increased customer visits at a time when competitors are seeing fewer of them. Cowen analyst Andrew Charles, who also rates Wendy’s Hold, said he was optimistic about the company’s sales due to its innovation and value offerings, but without “a specific catalyst for what drives enduring same-store sales beats,” he left his rating right where it was.

Wendy’s stock appears to be waiting for a catalyst as well. Shares had a big gain, but not big enough to knock them out of the range they’ve been stuck in since June 2020. That’s when the stock rallied back to where it had been before the market’s pandemic tumble—and then it stopped in its tracks. There were worries about whether Wendy’s could grow through lockdown; whether it could grow through the reopening; and how its breakfast offerings would do, among others. Its stock has gained just 3% over the past 12 months.

There’s one problem with waiting for a catalyst, however—by the time it arrives, it may already be priced in. And there are a lot of things that, if they go right, could become the good news that drives the stock higher. Its breakfast business—up 10%—is growing, as is its digital offering, which was up 10% as well. Wendy’s even increased its expansion target so it would have 8,500 to 9,000 total restaurants by 2025.

“In aggregate, we believe the company’s initiatives and execution are showing through in its fundamentals, even if it has yet to be fully appreciated by the investment community,” writes MKM analyst Brett Levy, who has a Buy rating and a $28 price target on the stock, up 22% from Wednesday’s close.

Ultimately, being appreciated by the investment community—and not just the meme traders—will be the recipe for further gains. Don’t be surprised if they come for Wendy’s sooner rather than later.

Write to Ben Levisohn at Ben.Levisohn@barrons.com