Buffalo Wild Wings: Spicy Pick

03/13/2014 8:00 am EST


Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Our latest featured breakout idea is a company that operates a chain of restaurants featuring chicken wings, notes Leo Fasciocco, breakout stock specialist and editor of Ticker Tape Digest.

Buffalo Wild Wings (BWLD) has annual revenues of $1.3 billion. Its owned and franchised restaurants feature a variety of boldly flavored, made-to-order menu items, including Buffalo, New York-style chicken wings spun in one of their signature sauces.

The widespread appeal of the company's concept establishes its restaurants as an inviting, neighborhood destination. The concept evolved from a university environment.

BWLD's stock came public in late 2003 and traded around $11. The stock hit a peak of $47 in 2007, the top in the prior bull market. BWLD then pulled back to as low as $14.50 in 2008, before soaring to an all-time high of $152.52 in November of last year.

We see a key driver for a potential breakout being the prospect of strong earnings for the upcoming first quarter. The Street is forecasting a 55% surge in profits to $1.35 a share from 87 cents a share a year ago. The highest estimate on the Street is at $1.49 a share.

Overall, earnings for the year should climb 28% to $4.85 a share from the $3.79 the year before. The stock sells with a price-earnings ratio of 30. That is high for a restaurant stock, but okay with BWLD because of the strong earnings outlook this year.

The largest fund holder is 5-star rated Fidelity Growth Company Fund with a big 7% stake. A key buyer recently was 4-star rated ClearBridge Small-Cap Growth Fund, which purchased 40,490 shares. It is the second largest fund holder with a 2% stake.

We suggest accumulation of a partial stake in BWLD with further buying to be done on a breakout over $152.60. We are then targeting the stock for a move to $180. There is also a chance for a stock split that could push the stock higher.

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