Buffalo Wild Wings: A Spicy Pick

06/19/2014 7:00 am EST

Focus: STOCKS

Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Our latest featured breakout stock operates a chain of restaurants featuring chicken wings; the stock has broken out from an 11-week flat base and is trading near a new all-time high, explains Leo Fasciocco, editor of Ticker Tape Digest.

With annual revenues of $1.3 billion, Buffalo Wild Wings (BWLD) operates owner and franchised restaurants featuring a variety of 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 inviting, neighborhood destinations. 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 due to the bear market.

However, since then, the stock has been hot, soaring and hitting an all-time high of $159.81 in March, before the shares faded back.

Now the stock is breaking out again. The move comes with a widening of the spread. That shows good buying interest. The stock's momentum indicator is solidly bullish.

We see a key drive for a potential breakout being the prospect of strong earnings for the upcoming second quarter. The Street is forecasting a 35% jump in profits to $1.19 a share from 88 cents a share a year ago.

The highest estimate on the Street is at $1.25 a share. BWLD topped the Streets' quarterly consensus the past four quarters—by 14 cents a share, 4 cents, and 9 cents, and 9 cents.

Overall, earnings for the year should leap 34% to $5.09 a share from the $3.79 the year before. Looking out to 2015, the Street projects a 17% gain in net to $5.96 a share from the anticipated $5.09 this year.

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.

Institutional sponsorship is very good. The largest fund holder is 5-star rated Fidelity Growth Company Fund with a big 6.5% stake. A key buyer recently was 4-star rated Lord Abbett Developing Growth Fund, which purchased 87,441 shares.

We rate BWLD as a good intermediate-term play. There is a chance for a stock split that could also push the stock higher. We are targeting BWLD for a move to $185. A protective stop can be placed near $147.

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