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? Can Buffalo Wild Wings fly higher? Buffalo Wild Wings Stock Hits New 52-Week High Buffalo Wild Wings soars past $100 per share. Other Stocks in the News China Commits to Ecuador: Out With the Old, in With the New Are China and Ecuador about to destroy a large patch of the Amazon Rainforest? A Trio of Game-Changing Developments in the Mobile World What's new with LinkedIn, Facebook and Zynga? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Jul 9, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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