Not All Burgers Are Created Equal

August 12, 2013, 12:55 pm ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Not all burgers are created equal. Americans love their fast food but they are growing tired of the same old thing. The niche burger-chains like In-N-Out Burger and Five Guys Burgers are becoming much more popular among Americans. These burger chains offer a smaller menu but better quality food items. Most Americans are looking for more than a dollar menu; they are looking for higher quality, variety and value. The only big burger-chain that seems to realize this trend is The Wendy's Co (NASDAQ:WEN). They just introduced a new burger that has created the biggest buzz in fast food in years, the Pretzel Bacon Cheeseburger. It has been so successful that since the launch of their new Pretzel Bacon Cheeseburger on July 1, Wendy's has seen its stock price increase over 42 percent!

Most people probably do not know that Wendy has passed Burger King Holdings, Inc. (NYSE:BKC) last year becoming number two on the largest burger-chain list behind McDonald's Corporation (NYSE:MCD). Burger King’s creepy King mascot ads a few years ago probably helped Wendy’s cause. This year WED has built on that momentum by cleaning up its stores and offering more premium burgers and sandwiches. Now customers can get a burger like the Pretzel Bacon Cheeseburger, which rivals any Five Guys burger, or choose from a variety of different menu items. WEN is upgrading many stores with bistro-like features, hoping to be associated more with the fast casual, higher quality restaurants like (Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera Bread Co (NASDAQ:PNRA).  Both PNRA and CMG have seen big gains in their stocks this year. PNRA shares just bounced back after testing long- term support, the stock recently fell on disappointing Q2 earnings.

WEN shares are trading at a 52 wk high and at their highest levels since 2008. Wendy's says it earned $12.2 million, or 3 cents per share. That compares with a loss of $5.5 million, or 1 cent per share, a year ago. For the year, Wendy's said it expects the sales figure to grow between 2 percent and 3 percent, given its expectation for stronger sales in the second half of the year. They also increased the quarterly dividend by 25% to 5 cents, a 2.8% yield. Stock Traders Daily has WEN strong near-term, but the stock is in play because it is testing long-term resistance; if resistance holds the stock could reverse all the way to longer term support. 

No doubt, the new pretzel bun has WEN on a roll. The timing of remodeling stores and a popular new product is what is driving the sales for WEN. They are offering customers the best of both worlds, the premium burger choice of the niche burger chains and the value only a big burger-chain can offer. Customers are willing to spend more to get something different and the pretzel bun is certainly different. In the end, just a bun can make a difference. Look for WEN to keep the new Pretzel Bacon Cheeseburger as a permanent item on the menu; it was originally intended to only be a limited time product. Who knows, maybe they will add the pretzel bun to other sandwiches on the menu. It is important for WEN to strike while the iron is hot and right now, the pretzel bun is hot. There is nothing on the market quite like it, and with this kind of buzz on one product, you can be sure that others are sure to follow.  After a big move in the stock, keep an eye on WEN long-term resistance.

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