On the Margin
Investors have little love for quick-service stocks

Investors have little love for quick-service stocks

Jonathan MazeThis post is part of the On the Margin blog.

By all measures, The Wendy’s Company Inc. reported a good fourth quarter this week. Its same-store sales growth increased in the period by the highest rate in four years. Profits and revenues both beat Wall Street expectations.

And yet the stock is down by about 13 percent since then.

Some of that came today, after an analyst downgraded Wendy’s amid concerns about projected capital spending at the chain following its refranchising effort — an effort that, theoretically, should reduce a company’s capital expenditures.

A note this morning from JP Morgan suggested that Wendy’s forecast of spending $150 million on capital expenditures in 2017 and 2018 is “too high.” That sent the stock down more than 5 percent in morning trading. 

The stock fell below $9 per share and close to its 52-week low — despite several Buy ratings from analysts and indications from the company that its sales momentum has continued into January.

But Wendy’s can take some solace in the fact that it’s not alone.

Investors have been pounding quick-service stocks all year, with perhaps one exception: McDonald’s.

The Oak Brook, Ill.-based giant is down less than 1 percent this year. That’s hardly world beating, but consider that all of its major competitors are down in the double digits this year or close to it.

Wendy’s is down 16 percent on the year. Restaurant Brands International Inc., operator of Burger King and Tim Hortons, is down 19 percent and on Thursday hit a new 52-week low. Not even grilled hot dogs could save that stock.

Other burger concepts including Jack in the Box and Sonic Drive-Ins are both down for the year.

With so many big companies down big, Nation’s Restaurant News Restaurant Index is down 3.5 percent year to date.

Restaurant stocks have been weak for a while, thanks to broader market concerns and economic worries as well as a belief that the sector had become overvalued.

But the weakness among quick-service stocks, and relative steadiness at McDonald’s, could be a sign that investors are putting faith into the Golden Arches’ ability to win the current battle among the giant chains.

That remains to be seen, of course. And there’s no reason that all of the restaurant chains currently offering low-cost meal options can’t gain customers and traffic in the next few months. But for now, at least, it appears that investors are picking sides in the current Burger Wars.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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