2 Analysts React To Wingstop's Q3 Earnings

Wingstop Inc WING reported third-quarter results that prompted one analyst to remain a bull while another is sticking to the sidelines.

Cowen: 'Can Go The Distance'

Wingstop's same-store sales in the third quarter were higher by 25.4% although this wasn't a surprise as management preannounced results, Cowen analyst Andrew Charles wrote in a note. Management also confirmed a $5 per share special dividend which was higher than prior estimates for a "more realistic" range of $3.50 to $4.00 per share payout.

While management didn't offer any quarter-to-date updates in its earnings report and conference call, Charles said there's no reason to believe there's a slowdown in the business. The absence of any commentary could be due to the presidential election that ushered in a period of softness in 2016 and only starting to improve after the launch of a national TV ad campaign in 2017.

However, the company is offering free delivery promotions through third-party delivery channels throughout select days in the fourth quarter. The chicken wing chain noted that orders after similar free promotions resulted in pre-promotion sales levels.

Charles maintains an Outperform rating on Wingstop's stock with a price target lowered from $166 to $155.

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BTIG: Valuation And Cost Concerns

Wingstop's third-quarter report showed the continued success of its "healthy" digital platform and the importance of a strong off-premise business throughout the COVID-19 pandemic, BTIG analyst Peter Saleh wrote in a note. There is reason to believe the momentum carried over into the fourth quarter and into 2020.

However, Saleh said management is likely to focus on investing in new products like chicken thighs and a "ballooning" advertising budget moving forward. In fact, the company is looking to defer some of its 2020 advertising budgets to next year to "support greater brand building."

Meanwhile, management's plan to expand internationally as part of a partnership with Boston Consulting Group could result in 1,000 units in China alone over the long-term. The structure of its expansion isn't yet known but it will include capital investment.

Saleh maintains a Neutral rating on Wingstop's stock.