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Wingstop flys to 4-year high after a rating change

Wingstop Inc. (WING) stock gained altitude to reach a new 4-year high of $85.71 on Tuesday after a rating upgrade from Stifel Nicolaus. The brokerage firm lifted its rating on Wingstop stock to “buy” from “hold” and raised the price target to $92 from $80. The company operates restaurants under the Wingstop brand name that offers cooked-to-order, hand-sauced, and tossed chicken wings.

As of March 30, 2019, there were 1,273 Wingstop restaurants system-wide. This included 1,141 restaurants in the United States, of which 1,112 were franchised restaurants and 29 were company-owned, and 132 franchised restaurants in international markets. During the first quarter of 2019, there were 21 net system-wide Wingstop restaurants opened.

According to the Street, for the foreseeable future, the sales growth will remain in the mid-to-high teens helped by its national advertising and digital ordering initiatives that has boosted brand awareness. The rivals cannot match with the company as its carryout and delivery operations require a smaller labor force and other efficiencies.

Image Courtesy: Wingstop / Facebook post

In contrast, market analysts believe that within an asset-light operating structure, Wingstop shares offer compelling long-term growth opportunity. The returning cash to shareholders has been committed by the management, which has a solid track record of operations and the brand has a solid unit-level economic profile.

For the first quarter, Wingstop posted a 7% increase in earnings as net franchise restaurant openings, an increase in contributions to national advertising fund, and the acquisition of five franchised restaurants drove revenues higher by 29%. Adjusted earnings fell by 10% due to rise in interest expense associated with the higher average outstanding debt balance related to securitized debt facility and higher SG&A expenses due to continued investments in strategic initiatives.

For fiscal 2019, the company expects mid-single digit domestic same-store sales growth and diluted earnings of about $0.72 to $0.74 per share. SG&A costs are anticipated to be in the range of $52 million to $55 million and interest expense is predicted to be $17.8 million for the full year. Estimated effective tax rate of about 25% has been set for the remainder of the year.

During the first quarter, the company has not seen the seasonal deflation that it typically sees at this time of the year as the demand for wings continues to be strong. In addition to the strong demand for wings, Wingstop also believes there has been pressure on the overall wing supply as chicken suppliers have struggled with bird weights through the first four months of the year. As fresh wings are sold in the market in 40-pound cases, it is taking more birds to fill the 40-pound case requirement and putting pressure on the wing market.

Shares of Wingstop ended Tuesday’s regular session up 4.69% at $84.99 on the Nasdaq. The stock has risen over 66% in the past year and over 29% in the past three months.

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