Wendy's shares briefly jumped to its highest level in more than five years Thursday after an Argus analyst upgraded his rating on the fast-food chain's stock to "Buy".
THE SPARK: Analyst John Staszak upgraded his rating on The Wendy's Co. from "Hold" to "Buy" saying that he expects the company's remodeling and improved menus should help boost sales. He also believes the company's plans to refranchise 425 stores will expand its margins and provide more reliable cash flow.
THE BIG PICTURE: Wendy's, based in Dublin, Ohio, is making a number of changes to try and distance itself from the greasy, cheap image of traditional fast-food chains. It is updating stores and trying to offer more premium burgers and sandwiches.
The company also announced in July that it would be selling 425 of its restaurants to franchisees.
The move isn't unusual; fast-food companies often own only a small percentage of their restaurants. This helps keep their operating costs in check and gives them a more stable stream of income that's tilted toward royalty fees and rent, rather sales at restaurants.
THE ANALYSIS: The analyst Staszak said that the company's third quarter is off to a solid start. He likes management's efforts to cut costs tied to an unsuccessful foray into the breakfast segment and to reduce the company's interest expenses through debt refinancing.
The analyst said he expects the company's sales and margin improvements to result in more rapid earnings growth over the next several years.
Staszak has a price target of $10 on the company's shares.
SHARE ACTION: Shares jumped 37 cents, or 4.4 percent, to $8.62 in afternoon trading Thursday. Its stock hit $8.71 earlier in the day, its highest level since December 2007, according to FactSet.