We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where The Wendy’s Company (NASDAQ:WEN) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
A closeup of a juicy hamburger sandwich with tomatoes and lettuce, on a sesame bun.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
The Wendy’s Company (NASDAQ:WEN)
Number of Hedge Fund Holders: 22
The Wendy’s Company (NASDAQ:WEN) is a parent corporation of the American fast food chain, Wendy’s. It operates through three business segments: Wendy’s U.S., Wendy’s International, and Global Real Estate & Development.
The Wendy’s Company (NASDAQ:WEN) announced financial results for the third quarter of 2024 on October 31. Revenue for Q3 grew 2.9% year-over-year to reach $566.7 million, driven by increases in advertising fund revenue, franchise royalty revenue, and franchise fees. Global system-wide sales rose by 1.8%, while same-restaurant sales saw a 0.2% increase. In addition, the company maintained its competitive position in U.S. markets within the QSR Burger category. Late-night and morning sales delivered strong performances during the quarter as well.
However, net income dropped 13.4% this year, from $58 million in Q3 2023 to $50.2 million. This was attributed to increased incremental investment in breakfast advertising and high general and administrative expenses. Depreciation and a higher effective tax rate also contributed to the dip in earnings for the quarter. The stock was down 6% following the announcement of these results for Q3 2024.
Despite the drop in net income, the fast food giant remains optimistic about its trajectory. The Wendy’s Company (NASDAQ:WEN) has made a robust start to the fourth quarter, with same-restaurant sales accelerating significantly in October, compared to the third quarter. The company expects full-year system-wide global sales growth to be around 3% and has reaffirmed its adjusted EBITDA outlook of $535 million to $545 million.
The Wendy’s Company (NASDAQ:WEN) is also seeing a surge in digital sales, having grown 40% from last year, led by a strong show by its U.S. segment. The company has made several enhancements of late to its app to improve user experience, which has seen the number of reward members enrollment grow from 43 million at the end of Q2 to 45 million as of the end of September. The fast-food chain is also expanding global operations at a rapid scale. It opened 64 new restaurants internationally during Q3, which has put the company on track to meet its goal of 250 to 300 openings for the full year.
According to Insider Monkey’s database for Q2 2024, 22 hedge funds had investments in Wendy’s, making it one of the best fast food stocks to invest in right now.
Overall, WEN ranks 8th among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WEN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.