4 Reasons Why Wedbush Upgraded Wingstop

Chicken wing restaurant chain Wingstop Inc WING boats multiple catalysts that are "underappreciated" by investors and not factored into the stock's valuation, according to Wedbush.

The Analyst

Wedbush's Nick Setyan upgraded Wingstop from Neutral to Outperform with a price target lifted from $51 to $59.

The Thesis

The case for aggressiveness on Wingstop's stock is fourfold, Setyan said in the upgrade note. (See the analyst's track record here.) 

• Recent firsthand checks suggests the Street is understating the company's same-store sales growth potential through 2019. In fact, Wingstop should at the very least sustain a mid-single digit same-store sales growth through 2019 versus consensus estimates of 3.2 percent in the third quarter, 2.6 percent in the fourth quarter and 3.5 percent for full year 2019.
• Favorable wing costs coupled with more favorable SG&A implies the potential for Wingstop to beat unit-level margin estimates of 27.7 percent, the analyst said.
• The company could take advantage of more favorable wing prices in generating higher margins in new stores.
• Wingstop's existing U.S. franchise base is likely to continue developing new units even if initial returns on investments decline to a "still-sufficient" metric of 25 percent, Setyan said. The company's international opportunity ahead is favorable and unit growth could mimic the growth profile of pizza and other chicken chains, the analyst said. 

Price Action

Wingstop shares were trading higher by 2.27 percent at the time of publication Thursday. 

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