Dreamstime
On the face of it, it doesn’t seem to be a good time to be Wingstop: The restaurant industry is dealing with a tight labor market, prices for chicken and other commodities are rising, and the boost to sales from the pandemic is fading.
Yet BTIG doesn’t think that these issues will derail the stock.
Analyst
Peter Saleh
boosted his rating on Wingstop (WING) to Buy from Neutral on Thursday, setting a target for the price of $175. He said he believes that the “stock is poised to break-out to new highs after nearly a year of flat performance despite solid top- and bottom-line performance.”
Omnichannel ordering and delivery meant that Wingstop fared relatively well during the Covid-19 crisis, and Saleh noted that there will be some natural deceleration in same-store sales in the coming quarters.
Still, he said, investors need to look at the big picture. “We believe sentiment is overly concerned about sales comparisons and near-term commodity challenges, neglecting the company’s long-term sales and …the competitive advantages it is establishing on technology, digital ordering, and development.”
He said his recent conversations with franchise operators indicate trends remained positive in May, even as much of the country began to reopen. Moreover, while chicken-wing prices are at record levels, he noted that Wingstop has implemented price increases to offset some of that pressure.
Of course, that doesn’t mean that restaurants are immune to shortages—some are buying wings from retailers like
(COST)—and this comes at a time when wages are rising. Yet Saleh is confident that Wingstop can overcome these issues.
He is especially enthusiastic about the company’s planned international expansion, saying he “ultimately believe[s] Wingstop could operate thousands of locations outside the United States with little to no capital investment.”
Wingstop was up 2.5% to $150.20 in premarket trading. The shares have gained 10.6% year to date, and 21.4% in the past 12 months.
Wingstop isn’t the only restaurant dealing with these issues.
(CMG) boosted prices for certain items this spring, a move that management said hasn’t deterred customers. As Barron’s has noted, more price increases could come as restaurants compete to attract employees with higher pay. Prices have been on the rise throughout the pandemic.
Supermarket prices are climbing in tandem, so consumers may be less likely to eat at home to save money.
Write to Teresa Rivas at teresa.rivas@barrons.com
