Why Wendy's Stock Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Wendy's shares  (NASDAQ: WEN  )  were giving investors indigestion today, closing down 11% after its top-line results disappointed the market today.

So what: Sales at the burger chain inched up 1% to $640.8 million, but missed estimates of $643.4 million. The stock has rocketed higher this year on a brand revamp, with shares nearly doubling as the company renovates stores and redesigns its menu. Given the appreciation, a sales miss was likely to bring the stock down significantly. Even so, adjusted earnings of $0.08 beat expectations of $0.06 so the company seems to be moving in the right direction. Wendy's also lifted its EPS guidance for the year to $0.25, better than analyst estimates at $0.23.

Now what: While Wendy's turnaround strategy seems to be progressing nicely, today's events are likely evidence that the stock has been overbought, and with a forward P/E at 29, it's easy to see why. Same-stores sales moved up 3.2% in the quarter, indicating that organic growth is still modest. Over the long haul, Wendy's strategy looks like it will pay off, but for now, shares may need to take a breather.

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Read/Post Comments (5) | Recommend This Article (3)

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  • Report this Comment On November 07, 2013, at 10:00 PM, scowler42 wrote:

    Wendy's is a

  • Report this Comment On November 07, 2013, at 10:21 PM, scowler42 wrote:

    Wendy's is a turnaround story that remains intact. I saw nothing in their quarterly earnings report that alarmed me. No, it wasn't perfect. But it did demonstrate to me that management is doing exactly what it set out to do. The fact that Wendy's posted a very slight revenue miss when compared to analyst's expectations has got to remain the analyst's problem, not Wendy's.

    Given today's nice decline in share price, I intend to increase my position size by 25 to 30%.

  • Report this Comment On November 08, 2013, at 7:44 AM, ghstflame wrote:

    Our investment club bought again yesterday, we love the turn around story, expect to hold for many years. At this point I would dare to say i even trust management...high marks for a shaky world in my opinion.

  • Report this Comment On November 10, 2013, at 2:18 AM, RyanPeckyno wrote:

    A solid turnaround play with a good strategy but due for a correction.

  • Report this Comment On November 13, 2013, at 8:44 PM, awallejr wrote:

    Bought Wendy's at $4 sold at $8.45. I really hate that red head in the commercial. Obnoxious is not a wise choice for advertising.

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