Pork Ribs Are Coming At Buffalo Wild Wings..But Will It Help Business?

In a report published Thursday, Wunderlich Securities analyst Robert M. Derrington maintained a Buy rating on Buffalo Wild Wings Inc (NASDAQ: BWLD), with a price target of $208.

Buffalo Wild Wings is among the industry's "premier growth" stories, averaging double-digit unit growth and 20 percent EPS growth. The company has recently been taking initiatives to "broaden the appeal of its B-dubs menu." This is expected to ease some pressure on chicken wing costs.

In the report Wunderlich Securities noted, "B-dubs will soon introduce new Pork Ribs, appetizers and add-ons and a new You-Pick-2 style Express Lunch which we believe is likely to prove a catalyst for both SSS and lower cost of sales despite high wing prices."

Spot market prices for pork have recently slipped close to a five-year low. With this, sales of pork ribs, sandwiches and appetizers could help Buffalo Wild Wings "mitigate its stubbornly high wing prices," Derrington said.

Moreover, recent B-dubs channel checks indicate better-than-projected same-store-sales in 1Q15. The sys-SSS estimate for 1Q has been raised from 6.5 percent to 8.2 percent, with sys-SSS up more than 11 percent in the first five weeks of 1Q, and the recent checks being positive.

"We noted improving trends at Happy Hour, during recent sporting events and especially during the recent NCAA March Madness tournament. In March, the company launched its new multi-platform campaign dubbed #WingWisdom along with the NCAA as "official hangout of March Madness," the analysts added.

The EPS estimate for Q1 has been raised from $1.62 to $1.66 to reflect the upward revision in sys-SSS estimate for the quarter, although this is likely to be offset by slightly higher COGS.

Derrington commented, however, that "we are currently holding our 2015E EPS at $5.90 (Street $5.99) reflecting 20.1% revenue growth to $1.820B (from $1.812B), sys-SSS of 6.0% (from 5.2%), and slightly lower rest. margins at 19.4% (from 19.5%). We project COGS to peak in Q1 at 30.4%, and decline to 29.8% in Q2, 29.4%in Q3, 29.4% in Q4 -- on improving food (wing) price inflation."

The EPS estimate for 2016 has been raised from $6.90 to $7.00.