Growth Story Intact, Wingstop Nevertheless Feels Pressure Of Industry-Wide Woes

Jeff Farmer of Wells Fargo reaffirmed his Outperform rating on Wingstop Inc WING, as he believes the company would continue to deliver sizable market share gains, double-digit unit growth and more than 90 percent free cash flow conversion over the long term.

Quarterly Print

Wingstop reported fourth-quarter EPS of $0.15, topping the Street estimate by $0.01, as weaker-than-expected domestic SSS (+1.0 percent) were offset by lower SG&A costs.

Though 2017 guidance metrics were generally in line with the company’s long-term model, SSS have started off the first quarter weaker (down 2.6 percent quarter-to-date) and the 2017 EPS range ($0.63–$0.64) failed to bracket the Street ($0.65), which is weighing on the stock.

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Justification To Stay Bullish

“We think the SSS softness seen in 4Q and 1QTD will revert back to consistently positive growth for the remainder of 2017 with national TV advertising & as online ordering picks up pace,” analyst Jeff Farmer wrote in a note.

The analyst is optimistic with SSS returning to positive territory over the past 2 weeks with the launch of national TV advertising and tax refunds slowly return to normalized levels.

Also, Farmer believes company’s lower-than-expected 2017 EPS view will prove conservative, primarily driven by unit growth.

At last check, shares of Wingstop had fallen 1.28 percent to $26.31. Farmer slightly lowered his valuation range to $30 to $32 from $32 to $34.