Wedbush On Wingstop: Don't Count On A Lack Of Long-Term Growth Opportunities

Wedbush’s Nick Setyan expects Wingstop Inc WING to see continued upside to the current forecasts, driven by margin outperformance and same store sales growth.

Setyan maintained an Outperform rating on the company, with a price target of $36.

Growth Drivers

The analyst believes the “initiation of recurring special dividends is poised to drive growing awareness of Wingstop's unique business model, and a growing premium to peers.”

Setyan also noted that the maturation of the new units cycle, along with online/mobile ordering, increase in advertising, new LTO flavors and incrementally favorable relative pricing have been the key drivers of the company’s comps to date.

“Going forward, we view a move to national advertising starting in January as a meaningful potential driver of SSS growth reacceleration,” said the analyst.

Cash Returns

In addition, unit growth has been driving industry-leading cash on cash returns, while a “lack of differentiation” has not hindered unit growth rate.

Wingstop’s stated franchisee cash on cash return of 35-40 percent is the highest among publicly traded franchised restaurants, and Setyan expects the 2016 return to exceed 50 percent.

The analyst also believes the company’s ability to return cash through special dividends is current underappreciated, and estimates that the next special dividend could be as high as $4.50 per share, paid by the end of 2018.