The outlook for Wendy's isn't looking as bright as some of its big-name peers in this environment of rising inflation, BMO Capital Markets said Monday. "While we remain constructive on WEN's longer-term outlook, WEN likely is less well positioned for a tighter U.S. consumer spending environment relative to some quick service peers," analyst Andrew Strelzik said in a note. "As a result, we see greater risk to same-store sales and margin expectations." The analyst downgraded Wendy's to market perform from outperform. He also trimmed his price target on the stock to $22 per share from $28, which is just 5.3% above Thursday's close. Among the reasons for the downgrade, Strelzik cited risks to Wendy's menu — particularly its newer breakfast options — as consumer purchasing slows. He expects consumers to focus spending on "favorites over trial" and noted that companies such as McDonald's offer a more established breakfast option. All fast-food companies face exposure to changing consumer spending habits, but Strelzik thinks McDonald's is better positioned to weather the macroeconomic storm given its lower margin volatility, while Papa John's and Wingstop remain cheap options for feeding a family. Strelzik also noted that during the slowdown in 2008 and 2009, Wendy's faced higher same-store sale declines than its public peers. "As a result, we see greater risk to comp/margin expectations and temper our 2022/2023 EBITDA outlook below consensus," he wrote. "Valuation is undemanding, but it will be difficult to argue for multiple expansion if estimates are moving lower." The bank also lowered same-store sales and earnings per share estimates for 2022 and 2023. — CNBC's Michael Bloom contributed to this report.
A 'now hiring' sign outside of a Wendy's on October 08, 2021 in Miami, Florida.
Joe Raedle | Getty Images
The outlook for Wendy's isn't looking as bright as some of its big-name peers in this environment of rising inflation, BMO Capital Markets said Monday.