UPDATE: Goldman Sachs Upgrades Wendy's (WEN) and Adds Stock to Conviction Buy List

(Updated - November 19, 2015 9:08 AM EST)

Goldman Sachs upgraded Wendy's (NASDAQ: WEN) from Neutral to to Buy and added the stock to its Conviction Buy List. Its price target was raised to $12.50 ($12 prior). Analyst Karen Holthouse doesn't think a resurgent McDonald's (NYSE: MCD) means share losses for everyone else, and she said valuation on out-year numbers is compelling.

"Valuation on post-refranchising numbers is compelling (8% FCF yield on 2017 estimates vs. our coverage average of 5.2%), and we see a comp acceleration on the back of the 4 for $4 promotion disproving the thesis that a resurgent MCD means a “zero-sum” game," said Holthouse. "WEN sounded very positive on the promotion on a recent field trip, and our own checks with competitors/franchisees and Google search trends are also encouraging."

Holthouse noted four catalyst:

1. "Limited exposure to ADB: The launch of MCD’s all-day breakfast generated significant consumer interest and also spurred breakfastoriented ad campaigns from competitors (e.g., Taco Bell), but WEN lacks any exposure to this currently more-competitive daypart.
2. Extremely positive on the new value platform: The 4 for $4 platform successfully reestablishes a much needed mid-value platform at WEN, and the company already noted improving traffic trends on the back of it. Our own checks support this, with a number of competitors and competing franchisees noting it as a threat and Google search trends now outpacing those for BK’s successful 2 for $5 promotion.
3. Leading other QSRs in mobile/technology deployment: Innovative technology (e.g., use of “beacon” technology, integration with Coke Freestyle app etc.) differentiates WEN/s move towards mobile from its peers. Most restaurants also already have digital menu boards which can drive higher check.
4. Market underappreciating out-year FCF potential: The market does not seem to be giving WEN any credit for the cash flow it will generate as it moves towards a 95% franchised system by the end of 2017. It is trading at an 8% FCF yield on 2017 estimates (which are in line with company guidance) vs. 5.2% for our coverage."

For an analyst ratings summary and ratings history on Wendy's click here. For more ratings news on Wendy's click here.

Shares of Wendy's closed at $9.90 yesterday.

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