Analyst Tries To Debunk Bear Thesis Against Wingstop's Growth

Some Wingstop Inc WING investors argue the chicken wing chain's expansion will result in cannibalization, but a deep dive into the thesis points otherwise, according to BMO Capital Markets.

The Analyst

BMO's Andrew Strelzik maintains an Outperform rating on Wingstop with a price target lifted from $84 to $108.

The Thesis

Wingstop's 1,100 domestic units has a path to expand and achieve management's domestic unit goal of 3,000 units, Strelzik wrote in a note. Part of the expansion strategy includes 2,000 new units in the top 25 markets, which has some concerned over cannibalization.

As it stands today, 40% of Wingstop locations in the top 25 markets have another location within three miles, Strelzik said. This figure is shy of Domino's Pizza, Inc. DPZ where the three-mile overlap stands at 54% in the same markets. In fact, 47% of Wingstop units in the top five markets (one-third of all U.S. locations) have a second location within a three-mile radius versus 55% at the pizza chain.

The "sizeable" gap suggests Wingstop has a notable unit growth opportunity before cannibalization concerns may become more valid. As such, Wingstop's growth strategy doesn't have any negative impact on related to same-store sales momentum and cannibalization.

Price Action

Wingstop's stock closed Monday at $91.93 per share. The stock hit a new 52-week high of $93.54 earlier this month.

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