A couple of restaurant chains will serve up earnings results this week including Denny’s (DENN) and Wendy’s (WEN).
Nick Setyan covers both those stocks for Wedbush and favors Denny’s while being cautious on Wendy’s. He thinks Denny’s will benefit from a “resurgent of lower-income customer base.”
Denny’s will post results on Monday after the close, the Street is expecting earnings of $0.11 a share; Wedbush is in-line with those estimates.
“Whether it’s lower gas prices, minimum wage hikes in California, with Denny’s having big exposure in California…that lower income customer is spending,” said Setyan.
Even the egg shortage isn’t expected to ruin Denny’s breakfast business. “90% of their system is franchised so I actually think that’s going to help them recoup some of their company-owned exposure through higher royalty fees,“ he said.
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Wendy’s is set to report Q2 earnings on Wednesday, before the open. Wedbush expects the fast-food chain to post earnings of $0.09 a share, in-line with the consensus. But the firm is more cautious on the stock with a “neutral” rating and price target of $12 a share, which is still almost 20% above its last closing price.
The analyst thinks not catering to the lower-income Americans will hurt Wendy’s bottom line. “They’re really trying to go after the higher income, affluent customer, and have been deserting a little bit of that value customer,” said Setyan.
Consistent outperformance of fundamentals is also missing for the analyst, “we haven’t seen that in the past eight quarters.”
“The stock has outperformed because of a lot of the capital structure maneuvers they’ve done, and that’s in the rearview mirror now,” according to the Wedbush analyst.
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