B-Dubs' Fundamentals Still Challenged But Upside Still Possible

Buffalo Wild Wings BWLD's stock is flirting with the $100 per share mark for the first time since 2013. This level is on the back of the restaurant chain's second-quarter earnings report, which disappointed investors. But not all analysts on the Street are ready to throw in the towel just yet, as Oppenheimer's Brian Bittner maintains an Outperform rating on the stock but with a price target slashed from $165 to $135.

Heading into the earnings report, Bittner was expecting a "large" reduction in the company's 2017 outlook but B-Dubs' report included a much larger than expected miss in the second quarter. As a result, the full year outlook was revised even lower than expected which contributed to Thursday's notable sell-off.

Management lowered its full-year same-store sales outlook from negative 1 percent to negative 2 percent, which implies comps for the bottom half of 2017 will range from negative 1.3 percent to around negative 3 percent, the analyst explained. Also, a shift in promotions away from traditional wings toward boneless wings will negatively impact comps as the company will likely lose some traffic.

But there may be a glimmer of hope after all, the analyst suggested. So far same-store sales in the third quarter to date "aren't worse" compared to the second quarter and a new management "overhaul" is ongoing. However, it is also clear from the earnings report that the company has a "very heavy workload ahead to get the financial model back on track."

"We are biased towards waiting to defend shares until we see a path to meeting or beating estimates," the analyst emphasized.

Finally, a $135 price target represents a 9x multiple to the analyst's 2018 EBITDA, which is "reasonable" but same-store sales and/or chicken wing prices need to normalize first.

BMO: Fundamentals Haven't Bottomed

Expectations heading into B-Dubs' earnings report were mostly negative and many investors were expecting a downward revision in the company's outlook, BMO Capital Markets' Andrew Strelzik commented in a research report. In fact, the company's revision was not materially different than what was expected but the margin performance was "markedly weaker," but a shift in promotional strategy will "alleviate some of the margin pressures" moving forward.

Over the near term, there is still risk to the restaurant chain's updated guidance even when factoring in the promotional shift and cost savings initiatives, the analyst added. Also, management's assumptions for wing prices could prove to be conservative. As such, there may be a time in the future where investors favorably view any strategic opportunities, but since "fundamentals [have] yet to bottom," that time is not now.

Strelzik maintains a Market Perform rating on Buffalo Wild Wings' stock with a price target slashed from $150 to $130.

At time of publication, shares of Buffalo Wild Wings were down 10.7 percent at $109.53.

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