Shares of Wendy's (WEN) are on the rise on Tuesday after Reddit's WallStreetBets chat board mentioned the stock as a potential short squeeze target alongside Clover Health Investments (CLOV). Those were not the only stocks finding favor among Reddit retail investors on Tuesday morning, with Naked Brand Group (NAKD), Sundial Growers (SNDL) and Workhorse Group (WKHS) also moving higher.
MEME STOCKS: While an unlikely "meme stock," Wendy's has attracted the attention of Reddit's WallStreetBets trading community, who mentioned the stock as well as Clover Health as potential short squeeze targets. Short interest in Clover has been climbing this year to about 42% of the float with a short exposure of over $430M, according to Bloomberg, citing data from S3 Partners. Other meme stocks moving higher on Tuesday morning include Naked Brand Group, Sundial Growers, Workhorse Group, AMC (AMC) and GameStop (GME).
SALES ACCELERATION IN MAY: In a research note to investors on Tuesday, Northcoast analyst Jim Sanderson said that recent channel checks across major markets show that Wendy's is "gaining ground in the current quarter" as weekly sales accelerated in both April and May. The analyst argued that menu price hikes are helping to drive growth and offset wage increases to retain employees. Going forward, additional inflows of cash to families starting in July under the Child Tax Credit Program will strengthen demand further, even as menu prices rise, Sanderson added. Longer-term, he believes Wendy’s is well positioned to drive growth globally as fewer competitors offer a rich opportunity to gain market share profitably. The analyst reiterated a Buy rating on Wendy's with a $30 price target.
WHAT'S NOTABLE: Last month, Wendy's posted better than expected first quarter results. The company reported first quarter adjusted earnings per share of 20c and revenue of $460.2M, compared to consensus estimates at 14c and $444.31M, respectively. Wendy's also reported first quarter U.S. systemwide sales growth of 13.1%, international systemwide sales growth of 7.3% and global systemwide sales growth of 12.5%. Additionally, the restaurant chain raised its full year 2021 adjusted earnings per share view to 72c-74c from 67c-69c, and its global systemwide sales growth view to 8%-10% - excluding the impact of the 53rd week - from 6%-8%.
Following the quarterly beat, Argus analyst John Staszak upgraded Wendy's to Buy from Hold with a $27 price target. The analyst told investors at the time that the company continues to benefit from new menu items, low-single-digit unit expansion, and accelerated spending in its digital business. Staszak added that Wendy's shares have room for further gains following the stronger-than-expected results and the management's upwardly revised guidance.
PRICE ACTION: In Tuesday morning trading, shares of Wendy's have gained almost 15% to $26.34.
