Is Buffalo Wild Wings (BWLD) On Fire?
Shares of casual restaurant Buffalo Wild Wings (BWLD) recently hit all-time highs, continuing its red hot 30% rally over the past six months. Last week, positive comments from Miller Tabak analyst Stephen Anderson kept that fire going, after his firm upgraded the stock from Hold to Buy, raising its price target from $98 to $110. However, the stock is trading with a comparatively high P/E of 34, which indicates that it might be time to pull back.
Let's take a look at some of this stock's fundamentals to see if Buffalo Wild Wings can keep soaring. Daily Chart
Anderson justified his $110 price target by claiming that corn and chicken wing costs will decline later this year, boosting Buffalo Wild Wings' earnings. Margins and earnings growth have been a sore spot for the company over the past year, as protein producers have grown larger chickens to produce more meat. This results in a lower supply of wings, which caused chicken wing prices to surge 26% in 2012. Over the past twelve months, chicken prices have also soared 43%. However, a 7.2% drop in corn prices over that same period should translate to lower corn feed costs, which could stabilize chicken prices. Buffalo Wild Wings has been trying to outmaneuver these rising costs with new craft-beers and non-chicken menu items to diversify its menu. Last quarter, Buffalo Wild Wings' earnings declined 11.2% to $0.87 per share, as its operating margin fell from 10.7% to 7.2%. However, revenue rose 21.2% to $304.4 million, and same-store sales climbed 2.2%. The company attributed its bottom line decline to higher wing prices, inconsistent wing yields and expenses related to the introduction of its "Guest Experience" model, which emphasizes more staff interaction with guests to promote a more festive, sports bar atmosphere. The key to Buffalo Wild Wings' revenue growth is its store expansion. Last quarter, the company added 16 new company-owned restaurants and four franchises, bringing its store count up to 397 company-owned locations and 514 franchise ones. Looking forward, Buffalo Wild Wings plans to add 12 new franchised units during the quarter, which would bring its total store count to 923. That still gives it a lot of room compared to its other fast-growth peers in the restaurant industry - Panera Bread (PNRA
), which has 1,541 stores, and Chipotle Mexican Grill (CMG
), which owns 1,458. In the first four weeks of the current quarter, Buffalo Wild Wings forecast 5.2% and 5.8% same-store sales growth in its company-owned and franchised locations, respectively, which indicates that its revenue growth will be fairly strong this quarter. For the full year, the company expects 2013 net earnings to rise 25% year-on-year, a sharp increase from the 17% growth it reported in 2012. If Buffalo Wild Wings can hit those targets, then it could have a rosy year ahead. However, the stock is still trading at a premium to its peers, and chicken and corn costs could still be a concern going forward. Other News About BWLD Buffalo Wild Wings To Fly Higher On Lower Food Costs?
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Published on Jul 9, 2013
By Leo Sun