Analyst Calls Wingstop Attractive, Sees Multi-Year Opportunity Ahead Of Earnings

Will Slabaugh of Stephens believes Wingstop Inc WING represents an "attractive, multi-year opportunity," which prompted the analyst to upgrade the stock from Equal Weight to Overweight with a newly established $32 price target.

According to Slabaugh, the chicken wings restaurant boasts the most attractive unit economics among any franchised restaurant. Specifically, the company generates a cash-on-cash return of 35 to 40 percent, which is used to solidify franchisee profitability and generate faster-franchised unit growth.

Wingstop Can Grow Faster Than Peers

The analyst also noted that a relatively low initial investment for franchised units (around $300,000) along with improving average unit volumes (AUV) and a proven profitability model contributes to the growth story.

While Wingstop is projected to grow its franchise store base by 12 to 15 percent throughout fiscal 2017, the analyst believes this rate is in fact likely conservative. But even at 12 to 15 percent, this represents three times the growth rate of its peers.

In fact, the analyst believes Wingstop has "significant opportunity" to expand in the United States and the company is on track to hit its long-term target of increasing its store count from around 900 today to 2,500.

Outside of the United States, Wingstop faces "significant" potential given its strong performance to date and the acceptance of chicken and sauce/flavor based concepts.

Bottom line, Slabaugh believes that Wingstop's mid-teens-or-better earnings per share growth profile along with an expected one-time dividend in the next 12 to 18 months should boost shares higher by 20 percent or more.

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