Bullish Thesis Takes Flight Again For Wingstop

Wingstop Inc WING's first-quarter earnings report impressed Wells Fargo's Jeff Farmer, who noted the company's bullish thesis is "back on track."

Delivery And Special Dividends

Farmer expects Wingstop will be in a position to reward shareholders with another special dividend in the first half of 2018 that could exceed 10 percent of its market cap. Related Links: Analyst Calls Wingstop Attractive, Sees Multi-Year Opportunity Ahead Of Earnings Wingstop Trades At A Sizeable Premium - And It Should

Wingstop reported earnings per share of $0.22 in the first quarter, which came in six cents better than expected, although system-wide same-store sales were down 1.1 percent. But the company did note same-store sales through 3/2 were down 2.6 percent, which implies same-store sales over the last four to five weeks of the quarter rose up to 2.0 percent.

As such, the analyst is modeling Wingstop to report a 2.2 percent growth in second quarter same-store sales. Beyond the second quarter, the analyst is expecting same-store sales to "modestly improve" in each sequential quarter. The analyst also believes Wingstop benefited from a national TV advertising in the quarter and the benefits should continue throughout the year.

Wingstop is exploring an expansion into delivery in the Las Vegas market and the analyst believes that this initiative will increase purchase frequency even though 75 percent of sales are already for takeout.

The analyst expects Wingstop's management to be "pleased" with incremental sales from delivery and incremental EBITDA metrics although at lower margins.

Finally, the analyst believes headwinds from delayed tax refunds and a more cautious consumer spending environment following the presidential election has now "normalized."

Shares remain Outperform rated with a valuation range boosted from $30 to $32 to a new range of $34 to $36.

At last check, shares of Wingstop were up 12.86 percent at $32.72.