Why Key Analyst Sees Buffalo Wild Wings Rising Another 15%
Oppenheimer weighed in on Buffalo Wild Wings' position going forward and was fairly positive on the outlook.
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Buffalo Wild Wings Inc. (NASDAQ: BWLD) saw its shares tumble back in April, but since that time they have made a handy recovery to an even higher level and a 52-week high. One key analyst weighed in on the company’s position going forward and was fairly positive on the outlook.
Oppenheimer upgraded Buffalo Wild Wings to Outperform from Perform with a $230 price target, implying 16% upside from current prices, and it raised 2016 estimates above Wall Street estimates. The firm raised its 2016 EPS estimate to $7.20 from $6.75. The consensus estimate from Thomson Reuters calls for $7.08.
Unit growth may be slowing, but this is not a near-term concern. Buffalo Wild Wings’ double-digit EPS algorithm should be sustainable for many years. International is just sprouting and smaller concepts are being tested with capital capacity for more exciting/impactful acquisitions in the future.
The brokerage firm gave a few key points in its analysis:
- Oppenheimer believes this model is equipped with levers to materially out-earn consensus in 2016.
- Its improving free cash flow profile appears underappreciated, could support an inaugural buyback and gives the balance sheet flexibility.
- At a 10.4 EBITDA multiple, valuation is attractive risk/reward relative to the peer group, particularly for top-tier same-store sales (SSS) and unique earnings upside.
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In its report Oppenheimer detailed:
With revenue expected in low-20% range and our vision for margin expansion, we justify upside to Street’s +26% estimate Every 100 basis points of margin should add 14% to EPS with margin opportunities detailed within. Plus, comps should remain healthy and we urge investors not to be spooked by ’16 guidance at “typical” 20%-level.
After years of trivial generation, free cash flow could balloon to over $125 million, given steady capital expenditures with expanding operating cash flow. This, along with significant debt capacity, creates case for a first-ever buyback or more accretive acquisitions. Every $100 million of unlevered buybacks should be an addition of $0.20 to EPS.
Buffalo Wild Wings stock is up from the $150 mark in June, but stock is actually only up over 9% year to date. At 10.4-times EBITDA, the stock is attractive relative to peers, particularly with top-tier SSS (mid-singles), above-average unit growth, earnings set to overgrow next year in Oppenheimer’s view and an appetite for accretive acquisitions.
Shares of Buffalo Wild Wings were up 1.5% at $199.08 Wednesday morning. The stock has a consensus analyst price target of $203.23 and a 52-week trading range of $122.15 to $199.41.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
