Morgan Stanley, Stephens Optimistic On Wingstop Despite Questionable 2018 Guidance

Wingstop Inc WING shares plummeted after the restaurant chain issued weak fiscal 2018 earnings guidance at the same time it posted a fourth-quarter earnings and sales beat on Thursday.

Morgan Stanley's and Stephens' positions on the company remain unchanged despite the guidance coming in short of the consensus. 

The Analysts

John Glass of Morgan Stanley reiterated an Overweight rating with a $50 price target.

Will Slabaugh of Stephens reiterated an Overweight rating with a $50 price target. 

The Thesis

At face value, Wingstop’s growth expectations in 2018 appeared to be tamped down, Morgan Stanley's Glass said, "but we don’t think that’s truly the case." 

The firm does not expect 2018 results to deviate from recent trends, Glass said in a Friday note. 

Morgan Stanley projects that 2018 will be a strong year for the fast casual chain, with advertising continuing to build awareness, an upcoming national delivery rollout and comp momentum that builds on a solid fourth quarter.

While not quantified, Super Bowl Sunday broke sales records for the company and lower wing prices mean that business conditions are better in 2018 than they were in the previous year, Glass said. 

“Wing prices have abated significantly, alleviating one pressure point for franchisees, and returns on new stores remain strong." On the international front, Wingstop's development is becoming more visible as agreements are phased in, the analyst said. 

Morgan Stanley lowered its EPS guidance in 2018 from 79 cents per share to 75 cents on the basis of domestic system same-store sales growth of 3 percent.

Will Slabaugh of Stephens said in a Friday note that Wingstop provided 'boilerplate' long-term guidance, and said he's confident the company could meet or exceed expectations in the foreseeable future. 

"While we do not want to discount the impact to profitability that traditional wings had in 2017, we believe the unit economics, sales trajectory and underlying profit momentum of the business likely pushes unit growth back toward the levels seen in 2017 vs. the slowdown that we believe investors fear," he said. 

Price Action

Wingstop shares were down 8 percent at the time of publication Friday morning at $43.04. 

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