BMO Thinks Investors Can Score Big With Dave & Buster's Thanks To Comp Momentum, Attractive Entry

BMO Capital maintains its Outperform rating on Dave & Buster's Entertainment, Inc. PLAY; the stock remains its favorite idea in the restaurants space on expectations of continued positive comp momentum through FY16.

Further, the brokerage feels a 20 percent pullback in the shares of Dave & Buster's over the last month creates an attractive entry point.

"We believe PLAY is among the best ways to position in the current Restaurant environment given its amusement-led business model, while also offering compelling near- and long-term growth potential and opportunities created by strong cash generation at a valuation misaligned with its growth profile," analyst Andrew Strelzik wrote in a note.

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Strelzik said management appeared confident in its ability to achieve FY16 comp guidance as cannibalization headwinds should moderate.

In addition, the analyst said competitive pressures may be less incremental going forward, as new locations of the two rivals set to open over the next 12 months are "unlikely to increasingly overlap with PLAY markets."

"PLAY's traffic losses largely occur during the "honeymoon" period and we believe PLAY could recapture some of the lost traffic as the locations begin to reach "post-honeymoon," Strelzik noted.

Further, the analyst believes additional smaller cost savings opportunities are on the horizon, and Dave & Buster's appears well positioned in terms of wage inflation, aiding further margin expansion over time.

Moreover, Strelzik noted Dave & Buster's has ample flexibility to deploy capital toward incremental growth opportunities including buyback, unit development, dividend and M&A.

At time of writing, shares of Dave & Buster's rose 2.59 percent to $38.82. The analyst's $48 price target implies a potential upside of 27 percent.

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