BMO Leaves Buffalo Wild Wings Analyst Day Bullish, Raises Price Target

BMO Capital Markets reiterated its Outperform rating on Buffalo Wild Wings BWLD and said the company has the potential to approach EPS of $9 in 2018.

At its analyst day, the restaurant operator increased its leverage target to 1.5x (to be completed by Q4) with the proceeds allocated to share repurchases ($300 million increase, with $375 million now remaining under authorization).

In addition, the company indicated it may implement its first dividend in 2017 and provided a qualitative plan to structurally enhance its restaurant margin profile to 20 percent.

"BWLD appears to be in the early stages of a strategic evolution across its capital and margin structure, while there are a litany of initiatives in its pipeline to drive a samestore sales recovery," analyst Andrew Strelzik wrote in a note.

"First, although the magnitude of the leverage increase and buyback were modestly below what we thought was possible, it is clearly a step in the right direction and could add $0.40 to annual EPS by our estimates," Strelzik continued.

The analyst noted that achieving the 20 percent restaurant margin target would add about $1 to earnings and it appears "highly achievable" given opportunities across food costs, labor and other operating costs.

Strelzik said the company appeared confident that its initiatives such as remodeling, loyalty, upgrading menu and new ad campaign would help it to post comp growth, though the timing is somewhat unclear.

"While many of the initiatives were not new, tests are showing positive results, and we are optimistic the newly outlined initiatives – upgrading menu, new ad campaign – will resonate," the analyst elaborated.

Strelzik raised his price target to $200 from $165 and the revised target implies a potential upside of 24 percent over Tuesday's close of $161.33.