Chicken Wing Prices Still In Bull Market (And So Are Wingstop Investors)

Wingstop Inc WING reported its earnings release on Thursday, announcing beats throughout the report, while providing positive guidance.

The Q4 report came in ahead of EPS estimates of $0.11 at $0.13 on revenue of $20.6 million (versus estimates of $20.23 million). Business revenue came in up 14 percent year-over-year, and comparable store sales came in up 5.9 percent over the same period.

The company sees fiscal year 2016 revenue between $88 and $89 million, versus an estimated $87 million, and EPS of $0.55 versus an estimated $0.54.

Chicken, In Vogue

Despite U.S. chicken wholesale prices steadily increasing over the past half-decade, chicken has seen a decline since 2015. However, the overall rise and subsequent slips haven't stopped chicken wing's illustrious bull market.

While prices at the beginning of 2012 were ever so slightly below $2 ($1.992/kg), the current level sits at $2.471/kg, down a penny from February 2016 and down $0.037 from February 2015.

Wingstop, for its part, is down 15.63 percent over the past year, but is up more than 13 percent year-to-date and up 6.39 percent over the past month.

Wells Fargo Loves Wingstop

Wells Fargo on Thursday issued a note on Wingstop, saying the company had "arguably the best business model and fundamentals in the restaurant sector."

Overall, Wells Fargo believes the fundamentals for Wingstop are "very strong," and the firm revised its earnings estimates and ultimately rate the wing place at Market Perform.

While the overall sentiment is a resounding yea for the company, Wells Fargo cautiously defended its Market Perform rating, "[V]ery challenging same-store sales (SSS) comparisons and a lofty valuation combine to keep us on the sidelines."

"We continue to view WING as one of the highest quality combinations of unit and SSS growth in the sector, with our lone hesitation in becoming more constructive on the name being WING's lofty 23X 2017E EBITDA valuation," the analysts explained.

Wells Fargo concluded, "We believe Wingstop's premium valuation appropriately reflects the company's: (1) multi-year run of best-in-sector SSS growth, (2) strong unit growth derivative drivers including a near best-in-class cash-on-cash return, and (3) potential for healthy EBITDA growth upside."

And Others

Barclays has an Equal-Weight rating and a $25.00 price target on the company, from early November 2015.

Guggenheim initiated coverage of Wingstop late November 2015, with a Buy rating at $26.00 price target.

Jefferies reiterated a price target of $28 and a Buy rating in mid-January 2016.

Goldman Sachs maintained a Neutral rating this week, while raising the price target to $27.00.