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Why Wendy's Stock Surged Last Month

By Jeremy Bowman - Apr 7, 2016 at 11:49AM

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The burger chain's stock heated up in March with the help of an analyst upgrade.

What: Shares of fast-food chain The Wendy's Company (WEN 2.54%) gained 16% in March according to data from S&P Global Market Intelligence. The burger chain seemed to benefit from the overall recovery in the market as well as a buy rating from an analyst firm.

So what: Longbow Research initiated a buy rating on Wendy's, saying that the company's turnaround story had just begun, and credited its shift to a "less capital intensive, higher franchised model, which should generate a more predictable and accelerated free cash flow that warrants a higher multiple for the shares." Longbow also gave the stock a $13 price target.

There was little news out on Wendy's stock last month, but the stock has been a solid winner over the last several years as investors continue to be convinced by the company's turnaround plan.

Now what: Wendy's stock plummeted following its recent earnings report in February, but the stock has battled back alongside the broader recover in the market as the S&P 500 has gained more than 10% since then. Like many of its rivals, Wendy's has been busy refranchising and refurbishing restaurants, hoping to boost customer traffic and cut general and administrative expenses, a strategy that seems to be working. Deals like its 4 for $4 menu have delivered a consistent increase in same-store sales. However, at a P/E of 30, the stock may be pushing the limits of its valuation. I wouldn't expect last month's run to continue.

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