Is This Restaurant More Appetizing Than Chipotle?
Marivic is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Buffalo Wild Wings (NASDAQ: BWLD) is appetizing to Steven Cohen, founder and CEO of SAC Capital Advisors. The billionaire investor purchased an additional 926,700 shares of the company based on the latest 13 filing of his firm with the Securities and Exchange Commission (SEC).
SAC Capital Advisors currently owns 930,000 total shares or 5% stake in Buffalo Wild Wings. During the previous quarter, the hedge fund held only 3,900 shares of the company. Its latest acquisition showed that Cohen is confident that Buffalo Wild Wings is capable of delivering positive returns.
Based on the third quarter earnings report of the company in October, Buffalo Wild Wings posted $246.9 million total revenue, 24.8% higher than its $197.8 million during the same period in 2011. The sales of its company owned restaurants rose by 26.2% to $228.4 million due to an additional 55 restaurants, and a 6.2 % increase in same store sales. The restaurant operator generated $18.4 million franchise fees and royalties, up from $16.7 million a year earlier. According to the company, its earnings per share decreased from $0.61 to $0.57 because of high cost of sales and preopening expenses.
Over the past five years, Buffalo Wild Wings continues to open more company-owned restaurants and franchised restaurants every quarter.
According to Sally Smith, CEO of Buffalo Wild Wings, the company aims to deliver earnings growth of 22% for FY 2013. The CEO is confident that the implementation of innovations in food, beverage, technology, and an enhanced guest services strategy would drive the company’s revenue. Smith also anticipated the company’s expansion to 1,700 locations in North America and overseas.
In 2011, Buffalo Wild Wings sold more than 1 billion traditional, boneless wings. The company sells an average of 21 million wings every week. According to Sally Smith, during the Super Bowl Sunday in 2012 alone, the company sold around 7.7 million wings. She expects the company to sell more than 8 million wings during the Super Bowl as it added100 locations this year. The stock value of BWLD surged by 21% and 30% during the Super Bowl in 2011 and 2012 respectively. Over the past three years, the company delivered 90.34% returns compared with the 37.39% posted by the S&P 500 and Chipotle Mexican Grill's (NYSE: CMG) 246.6% returns.
BWLD has 24% growth rate on EPS, 24.3% on EBITDA and 21.7% on revenue over the past five years. The company has zero long-term debt and $184 million total liabilities, which is lower than its $549.85 million total assets. Although the company’s revenue fluctuates due to the inflation of chicken wings (up by 40% in 5 years), BWLD maintained to report an increasing revenue and EPS over the years.
Other investors that held a large amount of shares of BWLD as September 30, 2012 include Tiger Consumer Management (848,314 shares), Vanguard Group (1,081,067 shares), Franklin Resources (1,092,375 shares), and FMR (1,274,526 shares). Analysts expect BWLD to report $0.95 EPS for the December quarter on February 5, 2013. Among the 20 analysts covering the stock, 9 currently recommended buy, 2 overweight, 8 hold and 1 mean. The shares of BWLD are trading around $76.65 per share as of this writing.
Based on the BWLD Total Returns Comparison table above, Chipotle Mexican Grill delivered 246.6% total returns over the past three years. Take note that over the past one year, its performance was -14.15%, and its year-to-date (YTD) returns were only 0.72% compared with BWLD’s 5.29%.
Last October, David Einhorn, hedge fund manager of Greenlight Capital revealed that he shorted the shares of CMG as the company faces a strong competition from Taco Bell, one of the restaurants operated by Yum! Brands (NYSE: YUM). Einhorn noted that CMG has higher quality, and cheaper menus and its ability to raise the prices of its products are limited because of competition. CMG ‘s comparable restaurant sales performance over the past three quarters have been declining from 12.7% (1Q), 8% (2Q), and 4.8% (3Q). Analysts from Jefferies believed the shares of CMG are overvalued , and the risk lies in its comparable restaurant sales and earnings. The research firm initiated a price target of $215 per share and an underperform rating.
Hedge fund manager, Richard McGuire of Marcato Capital Management find considerable value in DineEquity (NYSE: DIN), owner of Applebee’s and IHOP restaurants. The hedge fund owns 1,021, 486 shares or 5.5% stake in the company. McGuire believed the company’s business model is exceptionally attractive, and it produces a stable cash flow and grows without capital because its franchisees add new restaurants and strive to increase same-store sales.
During the third quarter of 2012, DineEquity posted a net income of $18.9 million or $1.03 adjusted EPS and reduced its total liabilities by $167.2 million. Last December, McGuire recommended for the company to return profits to shareholders by distributing an annual dividend of $6 per share. He believed the DineEquity is generating significant free cash flow in relation to its market value. If the company follows McGuire’s suggestion, investors will benefit from it, and the stock will become more attractive.
Analysts at JP Morgan maintained their overweighting for DIN and raised the target price from $65 to $73 per share. The shares of DIN are trading around $69.42 per share after hours trading on January 7.
MarieCabural has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!