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Wingstop valuation seems to ‘reflect an overly optimistic view’ of near-term momentum – Jefferies

2023.03.27 08:20


© Reuters. Wingstop (WING) valuation seems to ‘reflect an overly optimistic view’ of near-term momentum – Jefferies

By Sam Boughedda

Wingstop (NASDAQ:) was downgraded to Underperform from Hold with a $160 price target by Jefferies analysts on Monday, as they believe the “upside to near-term momentum appears fully baked.”

The valuations “seem to reflect an overly optimistic view” of near-term same-store sales (SSS) momentum, the analysts said in a research note.

“Based on our analysis, we believe incremental drivers in ’22 could contribute 500-750bps in aggregate to SSS in ’23, and suggests ~LSD% Cons ests are realistic even as drivers are lapped,” they wrote. “That said, we see limited room for upside at this point relative to moderating 2H trends, barring incremental visibility into the product pipeline(outside of customary flavor launch/bundles) and what could prove as ‘platform’ initiatives (i.e. digital transformation, boneless) for future innovation.”

In addition, the analysts believe wing cost deflation is well understood, but “now off record lows and opportunities for structurally lower COGS remain to be seen.”

“Bone-in wing costs remain deflationary in 1Q (~$1.10/lb or -60% YoY) albeit higher off record troughs (+20% YTD) with elevated frozen inventories adding further support,” the analysts added.

“While normalization is likely over the near to medium term, we believe there are multiple ways WING can manage through (emphasis on boneless, whole bird plus pricing strategy), including the potential supply chain integration,” they stated. “That said, visibility on the latter is still limited, which could prove a material unlock for greater cost predictability longer-term (recall oppty for towards low-to-mid 30% COGS).”

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