Growth Story Intact, Wingstop Nevertheless Feels Pressure Of Industry-Wide Woes

Jeff Farmer of Wells Fargo reaffirmed his Outperform rating on Wingstop Inc (NASDAQ:WING), as he believes the company would continue to deliver sizable market share gains, double-digit unit growth and more than 90 percent free cash flow conversion over the long term.

Quarterly Print

Wingstop reported fourth-quarter EPS of $0.15, topping the Street estimate by $0.01, as weaker-than-expected domestic SSS (+1.0 percent) were offset by lower SG&A costs.

Though 2017 guidance metrics were generally in line with the company’s long-term model, SSS have started off the first quarter weaker (down 2.6 percent quarter-to-date) and the 2017 EPS range ($0.63–$0.64) failed to bracket the Street ($0.65), which is weighing on the stock.

Related Link: Wingstop Trades At A Sizeable Premium - And It Should

Justification To Stay Bullish

“We think the SSS softness seen in 4Q and 1QTD will revert back to consistently positive growth for the remainder of 2017 with national TV advertising & as online ordering picks up pace,” analyst Jeff Farmer wrote in a note.

The analyst is optimistic with SSS returning to positive territory over the past 2 weeks with the launch of national TV advertising and tax refunds slowly return to normalized levels.

Also, Farmer believes company’s lower-than-expected 2017 EPS view will prove conservative, primarily driven by unit growth.

At last check, shares of Wingstop had fallen 1.28 percent to $26.31. Farmer slightly lowered his valuation range to $30 to $32 from $32 to $34.