WEN stock is the IBD Stock Of The Day as the burger chain rebounded powerfully off a key technical level, snapping a recent downtrend to offer an early entry.
On Friday, Wendy's preannounced Q4 results that showed a 20% increase in adjusted EBITDA on a 13.4% revenue gain. That marks the highest sales growth in six quarters, and the fourth straight quarter of accelerating gains, just topping Q3's 13.2%.
The board of the Dublin, Ohio-based company approved doubling its quarterly dividend to 25 cents and spending $500 million on share buybacks.
Wendy's also reported a 6% rise in same-store sales and expanding margins.
In addition, the restaurant operator announced a broader organizational redesign and several executive departures as part of its long-term growth strategy.
In a separate regulatory filing, activist investor Nelson Peltz's Trian Fund Management said it won't pursue a Wendy's takeover bid. In May, the hedge fund said it was exploring a potential deal. Trian is the fast-food chain's largest shareholder and Peltz serves as board chair.
Trian initially invested in Wendy's in 2005 and started a push for change in 2008.
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Wendy's Stock Ratings Solid
The Stock Checkup tool shows that WEN stock earns a strong 85 IBD Composite Rating, out of a best-possible 99. It has an RS Rating of 73 out of 99.
Its EPS Rating is a superior 84.
The FactSet analyst consensus rating on WEN stock is overweight, with a consensus price target of $23.87, a price level Wendy's shares almost reached Friday after jumping on the Q4 preannouncement.
WEN Stock
Shares of Wendy's jumped 6% to 23.08 in big volume on the stock market today, a big upside reversal from an intraday low of 21.36.
WEN stock rebounded above the 50-day moving average and reclaimed the 21-day line. Wendy's stock is also breaking a recent downtrend.
At Friday's lows, WEN stock briefly undercut a 21.59 cup-with-handle buy point from a prior base.
Wendy's stock should have a flat base with a 23.88 entry at Friday's close.
Friday's action can be seen as an early entry from that emerging consolidation or as a first 50-day line test from the prior base.
The relative strength line for WEN stock surged for much of 2022, the MarketSmith chart shows. That strength indicator has pulled back a bit from December highs. A rising RS line means that a stock is outperforming vs. the S&P 500.
The 81 Relative Strength Rating means that WEN stock has outperformed 81% of all stocks in IBD's database over the past year.
McDonald's bears an RS Rating of 75 while Yum China sports a 94.
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Wendy's Earnings
Recent Wendy's earnings have been volatile. The company posted EPS declines in the first two quarters of 2022, followed by a 26% gain in Q3.
Revenue growth accelerated from 6% to 9% to 13% over this period. That compares favorably with McDonald's, whose revenue growth fell from nearly 19% in Q1 to 8% in Q2 and dropping into negative territory in Q3.
Despite a tough first half, Wall Street expects Wendy's earnings to rise 3.7% in all of 2022, following a big 44% rebound in 2021.
Analysts expect Wendy's earnings growth to accelerate to 14.6% next year. But revenue growth is seen slowing to 3.3% in 2023 from 10.5% in 2022.
Wendy's makes its official Q4 report on March 1.
In the past year, WEN stock fell 3.2% vs. a 14.8% decline for the S&P 500 index. Wendy's stock has rallied nearly 22% from its late September low.
