Wendys Co (NASDAQ:WEN) shares rallied sharply Wednesday after the company’s first-quarter earnings topped expectations.
The jump in WEN stock, which also was fueled by news of the company’s plans to sell off part of its restaurants, resulted in a technically sound move that favors further price appreciation in coming weeks.
Wendy’s Earnings Recap
Specifically, Wendy’s first-quarter earnings came to 6 cents per share, topping estimates by a penny, but sales of $466.2 million fell short of the consensus expectation for $476.5 million. Those revenues were lower by about 11% on a year-over-year basis, while same-store sales rose 3.2%.
In terms of outlook, Wendy’s now sees same-store sales for full-year 2015 rising in a range of 2.5% to 3%, roughly in line with its previous guidance.
WEN went on to say that it will look to sell its bakery operations, as well as sell about 640 restaurants to its franchisees.
There’s been a real burger buzz this year between the initial public offering of Shake Shack Inc (NYSE:SHAK) and sharp rally in the stock in stark contrast to the seemingly nonstop headlines of declining sales at McDonald’s Corporation (NYSE:MCD). The “flight” to a better-quality burger continues as a trend, and Wendy’s has long touted its quality ingredients and revamped its menu … so at least at the margin, WEN stock looks to be better positioned in this trend than McDonald’s.
WEN Stock Charts
Looking at the multiyear chart of WEN stock, we note that after a long sideways shuffle that started in late 2008, by summer 2013, Wendy’s came back to life, broke out of a channel (red dotted parallels) and started a steep rally into early 2014. For the rest of 2014, WEN again consolidated, but the early 2015 rally pushed the stock above its 2014 highs (and thus above a horizontal line of resistance) before consolidating once more.
On the daily chart, we see that Wednesday’s 7.24% post-earnings rally came on big volume and resulted in a breakaway gap. The move forced WEN stock out of the consolidation pattern that resembles a bull flag and which had been in the making since early March.
Even the intraday action on Wednesday showed promising signs, as a selloff was quickly stemmed and forced the stock to close near the highs of the day.
Active investors and traders can now use Wednesday’s strength in WEN stock to their advantage. A push above and hold above the $11.20 area could further confirm Wednesday’s strength and begin to push Wendy’s toward the $12 area as a next upside target and through a at least a multi-week lens.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
