Wingstop Trades At A Sizeable Premium - And It Should

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Jeff Farmer of Wells Fargo maintains his Outperform rating on Wingstop Inc WING ahead of its fourth-quarter earnings on March 2.

Farmer expects EPS of $0.14, in line with the Street, and 3 percent system same-store sales, below the 3.5 percent Street estimate and equating to 500bps relative outperformance to the Black Box sector index.

“We believe that WING’s sizeable valuation premium is both merited and sustainable driven by the company’s unrivaled unit development momentum, our expectation for accelerating market share gains in 2017 as the concept graduates to national TV advertising and potential for a biennial dividend equal to 10+ percent of current market cap,” Farmer wrote in a note.

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

The analyst expects investors to focus on 2017 EPS forecast and fourth quarter same store sales. Investors would also look at 2017 unit development guidance as the company raised the metric in the previous two quarterly prints.

Farmer expects Wingstop to introduce 2017 EPS guidance in the range of $0.65–$0.66, matching the current Street estimate of $0.65. The analyst projects 2017 EPS of $0.66 on 12-percent revenue growth. In addition, the analyst estimates the company to guide to low-single digit SSS growth in 2017.

“We expect the introduction of national TV advertising in early 2017 and continued rapid consumer adoption of Wingstop’s mobile ordering platform to drive growing market share gains in 2017 and 2018,” Farmer added.

At last check, shares of Wingstop were down 0.68 percent to $26.32. The analyst has a valuation range of $32–$34, which equates to 23–24x his 2018 EBITDA estimate, a premium to the growth peer group average.

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