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Wingstop (WING - Free Report) is a Zacks Rank #1 (Strong Buy) that franchises and operates restaurants under the Wingstop brand name. Its restaurants offer cooked-to-order, hand-sauced and tossed chicken wings.
The stock has been volatile this year, but it bottomed in June and has almost doubled from the lows. Inflation for restaurants has been a big fear for investors this year, as costs hit margins and the bottom line. However, Wingstop is seeing deflation in chicken wings, which will be a tailwind for the company over the next few quarters.
Additionally, the stock is holding up well technically as it trades above its moving averages. If the overall market can find some footing into the end of the 2022, WING could be looking at all-time highs at some point next year.
About the Company
Wingstop was founded in 1994 and is headquartered in Addison, Texas. At the end of 2021, the company had 1,695 franchised restaurants and 36 company-owned restaurants in 44 states and 7 countries worldwide.
Wingstop has a market cap just under $4 Billion and has a Forward PE of 83. This high valuation has scared some investors away and gives the stock a Zacks Style Score of “F” in Value.
Wingstop is down 20% in 2022 and considering most stocks with high valuations have been crushed this year, the valuation is not a top concern. Cleary the smart money expects Wingstop to grow into this valuation at some point. One way to do that is to keep beating earnings expectations.
Q2 Earnings Beat
In late July, the company reported an earnings beat of 28%. Revenues came in just below expectations, but the company affirmed FY22 at a range of $1.55-1.57 vs the $1.51 expected.
Domestic Same Store Sales were down 3.3%, but three-year SSS saw an increase of 30.7%. This tells us that the company has done very well since the beginning of the pandemic.
Wingstop also increased their dividend to $0.19 from $0.17. At current trading levels this dividend yields about 0.6%.
One of the biggest surprises for the company this year is that they have not seen commodity inflation with their product. In fact, they have actually seen deflation, which will help their margins.
CEO Michael Skip worth had the following comments on the that topic:
"We are in a unique position for the back half of 2022 where we are benefiting from meaningful deflation in bone-in wings, have a proven playbook, along with sales-driving levers that give us confidence in our ability to deliver on our outlook for 2022."
The stock surged on the earnings news, moving from under the $100 level to $140 in just under a month. Since then, the stock has meandered sideways as estimates have flatlined.
Analyst Estimates
The stock would likely be much higher if not for analysts’ hesitation to raise estimates in the short-term. With a market filled with uncertainty surrounding inflation, its hard to blame them.
For the current quarter estimates have fallen from $0.36 to $0.35 over the last month, or 2%.
But for the current year, we see estimates trending higher. Over the last 90 days, analysts have taken their numbers from $1.53 to $1.57 or 3%.
While estimates are mixed, price targets for the stock have been taken higher since earnings:
Wedbush reiterated its Outperform and lifted its price target to $135 from $105.
CitiGroup reiterated with Buy, raising price target to $145 from $118.
Barclays reiterated its Overweight with a new price target at $144, up from $101.
The Technicals
While most stocks are just getting clobbered, WING has held up well. This was not the case earlier in 2022, as the stock fell apart in May, dropping all the way to $67.
From there, it rallied into the August market highs and then hit levels not seen since February after that solid earnings report.
Even over the last few weeks, the stock continues to hold up, despite the S&P dropping to new 2022 lows.
Looking at moving averages WING is currently trading right at its 50-day MA at $130. If this level gives way to market pressure, the $124 level would be an area of interest as it is the 61.8% retrace from August low to recent highs.
If we get a larger sell off, look for the 200-day moving average at $117.
The stock has seen some selling at a very important Fibonacci level at $140. This area is the 61.8% retrace from all-time highs to 2022 lows. If the bulls can get price above this area, long-term targets for the stock would be the 161.8% extension or $250.
Bottom Line
While the valuation is scaring off some investors, Wingstop is seeing its stock hold up very well during the market sell off. This should tell investors that the smart money sees something here and that could be deflation in chicken wings.
If costs continue to go down, Wingstop will benefit by higher margins. With that, if the restaurant continues to see growth and beat earnings expectations, it will not take long to grow into that valuation.
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Bull of the Day: Wingstop (WING)
Wingstop (WING - Free Report) is a Zacks Rank #1 (Strong Buy) that franchises and operates restaurants under the Wingstop brand name. Its restaurants offer cooked-to-order, hand-sauced and tossed chicken wings.
The stock has been volatile this year, but it bottomed in June and has almost doubled from the lows. Inflation for restaurants has been a big fear for investors this year, as costs hit margins and the bottom line. However, Wingstop is seeing deflation in chicken wings, which will be a tailwind for the company over the next few quarters.
Additionally, the stock is holding up well technically as it trades above its moving averages. If the overall market can find some footing into the end of the 2022, WING could be looking at all-time highs at some point next year.
About the Company
Wingstop was founded in 1994 and is headquartered in Addison, Texas. At the end of 2021, the company had 1,695 franchised restaurants and 36 company-owned restaurants in 44 states and 7 countries worldwide.
Wingstop has a market cap just under $4 Billion and has a Forward PE of 83. This high valuation has scared some investors away and gives the stock a Zacks Style Score of “F” in Value.
Wingstop is down 20% in 2022 and considering most stocks with high valuations have been crushed this year, the valuation is not a top concern. Cleary the smart money expects Wingstop to grow into this valuation at some point. One way to do that is to keep beating earnings expectations.
Q2 Earnings Beat
In late July, the company reported an earnings beat of 28%. Revenues came in just below expectations, but the company affirmed FY22 at a range of $1.55-1.57 vs the $1.51 expected.
Domestic Same Store Sales were down 3.3%, but three-year SSS saw an increase of 30.7%. This tells us that the company has done very well since the beginning of the pandemic.
Wingstop also increased their dividend to $0.19 from $0.17. At current trading levels this dividend yields about 0.6%.
One of the biggest surprises for the company this year is that they have not seen commodity inflation with their product. In fact, they have actually seen deflation, which will help their margins.
CEO Michael Skip worth had the following comments on the that topic:
"We are in a unique position for the back half of 2022 where we are benefiting from meaningful deflation in bone-in wings, have a proven playbook, along with sales-driving levers that give us confidence in our ability to deliver on our outlook for 2022."
The stock surged on the earnings news, moving from under the $100 level to $140 in just under a month. Since then, the stock has meandered sideways as estimates have flatlined.
Analyst Estimates
The stock would likely be much higher if not for analysts’ hesitation to raise estimates in the short-term. With a market filled with uncertainty surrounding inflation, its hard to blame them.
For the current quarter estimates have fallen from $0.36 to $0.35 over the last month, or 2%.
But for the current year, we see estimates trending higher. Over the last 90 days, analysts have taken their numbers from $1.53 to $1.57 or 3%.
While estimates are mixed, price targets for the stock have been taken higher since earnings:
Wedbush reiterated its Outperform and lifted its price target to $135 from $105.
CitiGroup reiterated with Buy, raising price target to $145 from $118.
Barclays reiterated its Overweight with a new price target at $144, up from $101.
The Technicals
While most stocks are just getting clobbered, WING has held up well. This was not the case earlier in 2022, as the stock fell apart in May, dropping all the way to $67.
From there, it rallied into the August market highs and then hit levels not seen since February after that solid earnings report.
Even over the last few weeks, the stock continues to hold up, despite the S&P dropping to new 2022 lows.
Looking at moving averages WING is currently trading right at its 50-day MA at $130. If this level gives way to market pressure, the $124 level would be an area of interest as it is the 61.8% retrace from August low to recent highs.
If we get a larger sell off, look for the 200-day moving average at $117.
The stock has seen some selling at a very important Fibonacci level at $140. This area is the 61.8% retrace from all-time highs to 2022 lows. If the bulls can get price above this area, long-term targets for the stock would be the 161.8% extension or $250.
Bottom Line
While the valuation is scaring off some investors, Wingstop is seeing its stock hold up very well during the market sell off. This should tell investors that the smart money sees something here and that could be deflation in chicken wings.
If costs continue to go down, Wingstop will benefit by higher margins. With that, if the restaurant continues to see growth and beat earnings expectations, it will not take long to grow into that valuation.