B-Dubs Headwinds Persist, But 2018 Looks Interesting

Analyst at Oppenheimer hold both a negative view on Buffalo Wild Wings BWLD's near-term outlook, but see a path towards improvement in 2018. The firm's Brian Bittner maintains an Outperform rating on Buffalo Wild Wings' stock with an unchanged $135 price target.

Over the near-term, B-Dubs needs to operate through a period of ongoing gross margin headwinds from elevated chicken wing costs and the likelihood of "subdued" sales, Bittner commented in a report. As such, there is risk to the company's 2017 guidance and the analyst's 2017 earnings per share estimate of $4.18 is a Street-low and notably short of the $4.52 per share consensus estimate and management's own guidance of $4.50 to $5.00 per share.

However, the negative sentiment will quickly change as soon as 2018, Bittner said. Specifically, the company's plan to replace a promotion of half-price low-margin wing Tuesdays with a higher-margin boneless wing promotion could alone add up to $2 to 2018 EPS on a full-year basis. On top of that, management already highlighted a cost savings plan of $25 million ($1 per share) that is split between labor, cost of goods sold (COGS), operating expenditure, and G&A.

Despite a Street low 2017 EPS outlook, a bullish stance on the restaurant chain is justified through the stock's risk to reward profile, Bittner explained. Specifically, at approximately 7.4x EBITDA, the stock is "starting to become interesting."

Bottom line, if management's 2018 catalysts play out as expected, it could stabilize sales and even evolve into new investable themes as free cash flow is directed back toward capital returns.

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