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Wendy's Has Best Momentum In Fast Food Sector, RBC Says

RBC Capital Markets analysts shared a look into second quarter industry sales trends for fast food restaurants. The firm estimates second quarter U.S. chain fast food same-store sales growth come in around 1-1.5 percent. This would imply a considerable slowdown from the 3 percent growth rate seen in the first quarter.

Thus far into the second quarter, management teams and sell side analysts are still trying to explain why sales slowed down. RBC analysts provided four plausible reasons for this:

  • Lower gas price relief
  • Less favorable weather
  • Election cycle worries
  • Food deflation.

The experts then went into company-specific issues.

For McDonald's Corporation , “finding the right value message remains a struggle,” the report noted. Having said this, “Longer food input cost relief and All-Day Breakfast may fund McDonald’s renovation pipeline.”

The analysts then went into Wendys Co , where they see the best momentum, driven by quality and value ameliorations.

“While Wendy’s domestic systemwide SSS growth is exiting 2Q relatively strong, we do not have visibility into fall marketing (e.g., how Wendy’s will lap its 4 for $4 menu introduction). Our guess is that Wendy’s stock may be range-bound until the chain can better demonstrate or explain how it will lap more difficult comparisons in 4Q16 and 2017,” the report concluded.

RBC has Outperform ratings for McDonald’s, Wendys and Restaurant Brands International Inc .