Buffalo Wild Wings (BWLD): Cost Deflation Continues
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Buffalo Wild Wings (NASDAQ: BWLD)
BMO Capital analyst, Andrew Strelzik, reiterated his Outperform rating on shares of Buffalo Wild Wings, Inc. (NASDAQ: BWLD) as wing prices remained deflationary for another week, falling 2% below year-ago levels to $1.46. This marks the twelfth consecutive week of wing price deflation, though the rate of deflation has moderated in each of the past seven weeks.
Despite moderating wing price deflation over the last several weeks, the analyst's constructive outlook for wing prices remains intact.
First, favorable wing price trends continue to unfold for BWLD's 3Q16 as wing prices are tracking approximately 6-7% below year-ago levels. Specifically, with visibility into more than two months of BWLD's 3Q wing costs, our regression analysis implies that BWLD's 3Q COGS are tracking modestly below 29% relative to FactSet consensus of 29.1%.
Second, although wing price deflation has moderated over the past seven weeks, the deceleration does not reflect a significant increase in wing prices. In fact, wing prices are increasing at a much slower pace than the normal seasonal pattern. Specifically, wing prices have increased only $0.03 since the beginning of June relative to historical average increases of $0.25-$0.30 from June to October.
Third, the setup for wing prices remains attractive over the next 12-18 months reflecting 1) the addition of two incremental big bird production facilities coming online over the next several months (add 3-4% big bird capacity); 2) heavy cold storage inventories (85% above last year according to the most recent data); and 3) ongoing competition from lower-priced alternative proteins.
No change to the price target of $165.00
**Shares of BWLD are up 19% since 6/14, when the stock was highlighted in the Stealth Growth Insider newsletter. For a free trial, click here
Shares of Buffalo Wild Wings, Inc. closed at $171.36 yesterday.
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