Wendy's Stock Downgraded to 'Underweight' by KeyBanc Capital Markets

The Wendy's Company was downgraded by analysts at KeyBanc from a "hold" rating to an "underweight" rating in a research report issued to clients and investors on Tuesday. They put a new price target of $4 a share based on three key reasons.

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"Wendy's is in the early stages of re-establishing its position as 'A Cut Above' the competition," wrote KeyBanc Capital Markets in the report.

"On the surface it seems to make sense that Wendy's should want to recapture its premium-quality positioning in fast food, but we believe it will be difficult to regain for the following reasons: 1) new premium-quality food leadership has been established by chains with fast service, like Panera Bread and Chick-fil-a; 2) raising the check average in the face of industry leaders, like McDonald's, promoting more value will be a challenge; and 3) Wendy's has not proven its new remodel package can generate the returns necessary for franchisees to roll-out."

The Wendy's Company closed at $4.37 on Monday, with a 52 week range of $4.29-$5.58.

Wendy's reported earnings last week Thursday for the quarter ended July 1 (Q2). The company met expectations on revenues and met expectations on earnings per share. Compared to the prior-year quarter, revenue improved and GAAP earnings per share contracted to a loss. Meanwhile, margins dropped across the board.

Wendy's booked revenue of $645.9 million. The 15 analysts polled by S&P Capital IQ predicted a top line of $647.5 million on the same basis. GAAP reported sales were 3.8 percent higher than the prior-year quarter's $622.5 million.