Wedbush Downgrades Wingstop, Valuation Reflects Growth Momentum

Wingstop Inc WING has gained more than 50% in value since late 2018.

The Analyst

Wedbush's Nick Setyan downgraded Wingstop from Outperform to Neutral with a price target lifted from $83 to $92.

The Thesis

Wingstop's stock is up around 30% since early May and it now appears a same-store sales growth in 2020 of at least a mid-single digit is "well understood" by the Street, Setyan wrote in the note. The research firm's prior expectation for a high-single digit comp for the full year 2019 has now become the base-case scenario.

The company should benefit from growth in digital ordering, including online/mobile, pickup and delivery options, the analyst wrote. Other initiatives to support growth through next year include the ongoing roll out of delivery options to 80% of locations, marketing programs, and the natural maturation cycle of new units as multi-year drivers of comps.

In terms of full year 2019 EPS, the company should report a figure that is near the high end of management's own 72 cent to 74 cent per share guidance, the analyst wrote. Upside from these figures are likely to only come from lower taxes as every 1% lower tax rate will contribute one penny to earnings.

Looking forward to Wingstop's second quarter earnings report on Aug. 1, Setyan said recent checks suggest same-store sales growth should come in above the Street's current estimate of 7.6%.

Price Action

Shares of Wingstop were trading lower by 2.31% at $95.05 Tuesday afternoon.

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