NBA & NFL Risks Not Reflected in Several Key Stocks (BWLD, DPZ, PZZA, DRJ, CLCT, UA)

Buffalo Wild Wings Inc. (NASDAQ: BWLD) has been a phenomenal stock and it is a very well-run company.  It arguably has a brand leadership role, at least for public companies, in its restaurant mix of feel-good food, beer, and a sports bar all rolled into one.  That being said, its current share price does not seem to reflect the risks of a fall season without the NFL and without the NBA.  It is not alone.

There are also risks in shares of BJ’s Restaurants, Inc. (NASDAQ: BJRI), Domino’s Pizza, Inc. (NYSE: DPZ), Papa John’s International Inc. (NASDAQ: PZZA), Dreams Inc. (AMEX: DRJ), Collectors Universe Inc. (NASDAQ: CLCT), and in Under Armour, Inc. (NYSE: UA).  There are certainly others which would be considered at risk, but these are the most likely to be sports-sensitive out of our current watch-lists.

As of today, the professional football season is still a question mark.  As of today, there is a lock-out in the NBA level for professional basketball that looks certain to delay the season.  It was believed that Buffalo Wild Wings could mitigate one league being on the sidelines.  Now, strikes have the risks being in the August-football and October-basketball being on the sidelines.  Sure, there is the Saturday flurry for college football and through September there will be baseball games on just about every single day.  There are also other sports matches that will be played.

What Buffalo Wild Wings DOES have working in its favor is several key issues.  Gas prices are lower and food prices are falling and expected to fall even more this year.  The really good news is that chicken wing prices in particular will be sharply lower if the NBA and NFL go dark for this season.  The rise in beer prices has also likely peaked.  That means that promotions will vary from wing chain to wing chain, but the idea that Hooters or Buffalo Wild Wings will cut prices deeply (other than the promotions and giveaways) is not something we would expect to see on the full menu day in and day out.  Companies know that raising prices on the full menu is hard to do.

The reality is that Buffalo Wild Wings is not alone in its risks of a seasonal lock-out in two professional sports.  We already noted Hooters, even if it is private.  It is also not just food chains at risk if the NBA and NFL go without a 2011-2012 season.  These are some other observed names with real risk if both the NBA and NFL, and we have tried to list the good news about each as well.  These are as follows:

BJ’s Restaurants, Inc. (NASDAQ: BJRI) just hit a new 52-week and all-time high of $54.82 today.  It has a high forward P/E of almost 50-times earnings with some 107 owned and/or operated casual dining restaurants.  The good news here is that BJ’s is not just a sports destination.  The bad news is that it feels priced for perfection, even if we ultimately think a private equity group would love to own this chain.

Domino’s Pizza, Inc. (NYSE: DPZ) and Papa John’s International Inc. (NASDAQ: PZZA) are in the same boat being equally tied to pizza and other comfort foods available for delivery or pick-up.  Papa John’s stock has actually pulled back more (with a downgrade today from SunTrust) at $32.13 from its 52-week highs of $34.75.  Domino’s is getting very close to now being outside of our “value zone” after we picked it out in April when shares were under $19.00.  If NBA games and NFL games are not going to be there this year, Domino’s could easily find its multi-pizza orders suffering from fewer house party events around sports.

Dreams Inc. (AMEX: DRJ) was previously lower on the thought that the NFL no-season was mostly priced into the stock.  At $2.60, its 52-week trading range is $1.17 to $3.18 but it is currently close to 3-month highs.  Sports licensed products and collector case sales are likely to suffer without NBA and NFL seasons combined.

Collectors Universe Inc. (NASDAQ: CLCT) is the owner and operator of PSA grading for cards and other memorabilia grading and authentication.  At $15.28, its 52-week range is $11.01 to $17.03 and shares are close to the highest levels of the summer.  What PSA’s owner has going for it that others do not is a dividend yield of between 8% and 9% as of today.

Under Armour, Inc. (NYSE: UA) was bashed over the weekend as being overvalued and trading at multiples that are twice that of rivals, according to Barron’s.  At $79.29, its 52-week range is $32.11 to $80.00 and this is effectively close to all-time highs.  Non-professional athletes are likely to keep buying sportswear even if there is not a pro-season in the NBA and NFL, but this one was singled out in Barron’s this weekend and is one we believe may have more at risk compared to other growth apparel stocks.

Buffalo Wild Wings Inc. (NASDAQ: BWLD) has already gone through a period of some downs.  Still, at $67.00 it is near all-time highs and the official 52-week range is $35.01 to $67.30.  Analysts have not exactly gone out and rushed to cut earnings estimates for the September quarter as of yet because we do not have the June-quarter results nor do we have formal guidance for both leagues being in the dark.

What needs to be considered is simple.  Long-term, sports leagues do not stay on the sidelines endlessly.  Even major wars have not ended play for too long.  It seems unlikely that the leagues and the players will allow a full season to be interrupted, even if the seasons are much shorter and without pre-seasons.

The good news is for price-sensitive consumers looking for deals.  You will likely have less wait times for seating and deliveries, and you can probably expect better promotions by the companies.

JON C. OGG