Analyst Believes Wingstop Has 'One Of The Strongest Unit Growth Stories' In Restaurant Sector

• Shares of Wingstop, Inc. WING have increased 15.63 percent over the last five trading days, reaching a high of $27.38 on October 7.
• SunTrust Robinson Humphrey’s Jake Bartlett initiated coverage of the company with a Buy rating and a price target of $32.
• Bartlett believes that Wingstop has among the “strongest unit growth stories” in the restaurant segment, while its franchise model helps drive robust free cash flow and the potential to return meaningful cash to shareholders over time.

Analyst Jake Bartlett said that Wingstop has achieved a dominant market position, 10 times greater than its largest direct wing competitor, by building a solid brand and expanding swiftly with franchise led growth. Wingstop has also been able to achieve average sales of 9.3 percent over the past 11 years.

Strong same store sales are expected to be driven by “1) increased brand awareness with mkt penetration, 2) a shift toward online ordering and 3) a tailwind as new unit volumes mature,” Barlett stated.

“The company is also expected to be able to sustain unit growth in the mid-teens through 2017, supported by 36 percent new unit ROI, the company’s small store size, and robust franchise interest.

These factors are expected to offer US market potential of 2,500 units, along with meaningful international unit opportunity, which is estimated at 160 units by 2020.

The company is 98 percent franchised and generates substantial free cash flow, with a yield of 2.2 percent expected in 2016. “This strong FCF plus incremental debt as EBITDA grows will likely fund significant cash returns to shareholders,” Barlett noted.

“We think WING should trade at a sizable premium relative to its peers given its asset-light business model, ability to sustain solid SSS and DD unit growth,” the SunTrust Robinson Humphrey report added.