Wendy's falls as analyst cuts rating, price target

NEW YORK (AP) -- Shares of Wendy's Co. slid 4 percent on Friday as an analyst downgraded the casual dining chain's rating and lowered its price target, saying the company's new W burger might be eating into sales of some of its other burgers.

THE SPARK: UBS's David Palmer cut Wendy's to "Neutral" from "Buy" and reduced its price target to $5.50 from $6.30.

THE BACKGROUND: Wendy's has been working hard to re-energize itself to keep up with rivals such as McDonald's Corp., Five Guys and Smashburger. The company, with new CEO Emil Brolick at the helm, has been pushing to offer breakfast nationwide and to expand further overseas.

Wendy's is scheduled to report its fourth-quarter results on Monday.

Wendy's was combined with Arby's for less than three years, in a deal engineered by billionaire investor Nelson Peltz. Wendy's sold Arby's to a private-equity firm in July, saying it needed to concentrate on improving Wendy's rather than trying to revive Arby's. The Wendy's/Arby's Group lost money in seven of the 10 quarters in which it reported results as a combined company.

THE ANALYSIS: Palmer said in a client note that Wendy's may have introduced its new W burger too soon after the rollout of its Dave's Hot 'N Juicy burgers, possibly creating confusion among customers and prompting them to trade down from higher-priced burgers to the more moderately priced W. Dave's Hot 'N Juicy came out in September, with the W debuting in November.

"While we had hoped that the W might cause trade up from the 99 cents menu, it appears to be cannibalizing premium burgers," Palmer wrote.

Dave's Hot 'N Juicy is named after late Wendy's founder Dave Thomas. The burger has extra cheese, a thicker beef patty, and a buttered toasted bun, among other ingredients.

The W burger has two beef patties, two slices of American cheese, thick-sliced tomato and a signature sauce all on a buttered, toasted bun. The Dublin, Ohio company's website says that the W is $2.99, though pricing may vary at its restaurants. Pricing for Dave's Hot 'N Juicy, which comes in a quarter-pound, half-pound and three-quarters pound versions, also varies but is more expensive than the W burger.

STOCK ACTION: Wendy's stock declined 21 cents, or 4 percent, to $5.05 in morning trading. Over the past year, the shares have traded between $4.29 and $5.62 per share.