The Sell-Side Take On B-Dubs Buyout Rumors

Shares of Buffalo Wild Wings BWLD surged higher by 25 percent Tuesday after The Wall Street Journal reported the restaurant could be acquired by Roark Capital Group, a private equity firm, for more than $2.3 billion, or around $150 per share.

Here's how some of Wall Street's top analysts reacted:

Wells Fargo: Competing Bid Likely

Private equity buyers rarely target restaurant chains, but Roark Capital Group does have a "robust" appetite for restaurants, Wells Fargo's Jeff Farmer said in a note. A competing bid is likely, since the $150-a-share offer implies only a "modest" multiple of 10.5x 2018E EBITDA versus other restaurant peers who trade at 11x 2018E EBITDA, Farmer said. 

B-Dubs has seen "significant" fundamental headwinds as of late and ongoing trends of declining traffic and higher input costs are likely to continue, the analyst said. As such, it would be "more difficult to justify" another bidder presenting a superior offer.

Farmer maintains a Market Weight rating on Buffalo Wild Wings' stock with a price target boosted from $110 to $150.

Morgan Stanley: Makes Sense

The logic behind a potential buyout of B-Dubs "makes sense" given the brand's long-term prospects, Morgan Stanley's John Glass said in a note. The restaurant chain's longer-term opportunities include: 1) margin upside, 2) upside from re-franchising and 3) a unique brand, he said. Turning around B-Dubs' prospects could require time that is "not typically afforded" to public companies, the analyst said. 

Glass maintains an Equal-weight rating on Buffalo Wild Wings' stock with an unchanged $124 price target.

Credit Suisse: 'Modest' Surprise

Reports of a potential acquisition of B-Dubs are a "modest surprise" given the restaurant chain's recent history of negative store sales trends and challenged margins, Credit Suisse's Jason West said in a note. 

Compelling reasons exist for a deal to occur, West said. They include: 1) the potential for $1 per share in earnings power from stabilizing chicken wing prices alone; 2) a new owner could find new cost-cutting initiatives on top of B-Dubs' already-announced $40 to $50 million initiative; 3) and the company's transition from a high-unit growth story to franchise-led growth fits with Roark's portfolio. Finally, the likelihood of a takeout is 50/50 and it is "unlikely" that another restaurant would bid for B-Dubs, he said. 

West maintains a Neutral rating on Buffalo Wild Wings' stock with an unchanged $120 price target.

Related Link: Roark Capital, The Company That Made A Bid For Buffalo Wild Wings, Has Quite The Restaurant Portfolio

Oppenheimer: Pros And Cons

One of the most visible pros from the deal is the "fair" price tag, given B-Dubs' recent negative same-store sales and an outlook that's "cloudy" at best, Oppenheimer's Brian Bittner said in a note. The deal also implies a 50 percent return from where shares were trading less than one month ago.

A $150 per share offer is below where the stock was trading at last year and comes at a time when chicken wing prices are sitting near their all-time highs, the analyst said. But Roark Capital's existing restaurant portfolio could give it "significant" G&A savings, and its prior stake in Wingstop Inc WING gives it first hand experience in operating a chicken wing restaurant brand, according to Oppenheimer. 

Bittner maintains an Outperform rating on Buffalo Wild Wings' stock with an unchanged $135 price target.

Stephens: Prime Candidate

Roark Capital is a "prime candidate" to turn around B-Dubs, Oppenheimer's Will Slabaugh said in a research report. The private equity firm has the necessary experience in the restaurant industry to turn around B-Dubs' business by improving the overall consumer experience, menu quality and overall value, he said.

Slabaugh maintains an Equal-Weight rating on Buffalo Wild Wings' stock with an unchanged $115 price target.

Related Link:

B-Dubs Headwinds Persist, But 2018 Looks Interesting

Photo courtesy of Buffalo Wild Wings.

Posted In: Brian BittnerChicken Wing PricesChicken WingsCredit SuisseJason WestJeff FarmerJohn GlassMorgan StanleyOppenheimerrestaurantsRoark Capital GroupStephensWells FargoWill SlabaughAnalyst ColorPrice TargetReiterationRestaurantsTop StoriesAnalyst RatingsGeneral

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