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Buffalo
Wild Wings is scheduled to report their fourth quarter 2008
results after the market closes on Wednesday, February 11. Based
on our analysis, we at
eChristianInvesting.com are expecting BWLD to report
disappointing results that fail to meet Wall Street’s
expectations.
Analyst
Expectations
We are
forecasting revenues of $115.7 million and EPS of $.36. This
would represent a 27% growth in revenues from last year’s $91.4
million in the same period. The current analyst consensus calls
for revenues of $117.4 million and $.39 EPS.
We expect
fourth quarter top-line growth to remain strong as store traffic
didn’t appear to decline significantly during the quarter.
However, chicken wing prices continued to climb and could
depress profit margins.
In this
economic environment we don’t expect BWLD to be able to increase
prices. Therefore, if chicken wing prices remain high we would
expect to see downward risks to earnings estimates as
profitability is hit.
On the
last earnings call, CEO Sally Smith stated that the company
expected revenue to grow 25% in 2009. While this may have been a
conservative estimate at the time, we believe current economic
conditions warrant even greater conservatism. We would not be
surprised for management to revise expectations downward for
2009 growth based on the current environment of declining
consumer spending.
While we
don’t expect BWLD to remain immune to the economic headwinds, we
are still very favorable on the concept. We would expect BWLD to
be one of the early movers in an economic recovery that could
begin as early as the second half of 2009.
Share
Performance
Buffalo
Wild Wing’s shares are down 12% since the beginning of the year.
In 2008, the stock was one of the stars of the market – gaining
10% while the Dow Jones index dropped 34%.
Valuation
Shares are
now trading at 14x consensus 2009 EPS estimates. This is only
slightly above their peer group. However, their superior growth
should command a premium valuation. We expect that once
investors gain more comfort with 2009 performance that this
stock could see a strong rally.
Recommendation:
Buy with a $25 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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