This post is part of the On the Margin blog.
is poised to have a strong year on Wall Street, at least if you believe stock analysts.
Three analysts picked the Minneapolis-based chicken wing chain as their top stock pick for 2016 in the annual stock-picking competition from the strategic communications firm ICR, which is holding its annual conference in Orlando, Fla., next week.
Buffalo Wild Wings’ stock is down about 25 percent from last September, when its stock price exceeded $200 per share. Much of that decline came in October, when the stock fell more than 20 percent following a disappointing third-quarter earnings report.
That decline represents a buying opportunity, according to Andrew Strelzik, analyst with BMO Capital Markets. He said the decline “presents a compelling entry point for investors to capitalize on an overreaction to temporary top-line issues.”
Stephens analyst Will Slabaugh said that improving traffic trends and softening costs should drive upside this year. UBS analyst Keith Siegner said that lower wing costs and franchise acquisitions should enable the company to grow earnings by more than 25 percent.
Restaurant stocks were hammered in the second half of 2015, and they haven’t had a great start to 2016, either. For those picking stocks for this year, then the question is which chain will most likely improve enough to attract investors’ attention.
For the most part, analysts picked traditional growth names, feeling more confident in their growth prospects, rather than old-guard concepts.
Two analysts, for instance, pickedBread, including Jeff Bernstein with Barclays and Andrew Charles with Cowen and Company. Both felt that refranchising, share repurchases and improvements made with the company’s “Panera 2.0” initiative should drive the stock higher this year.
One analyst picked: William Blair & Company analyst Sharon Zackfia.
Chipotle is an interesting case. It has fallen into the $416 range, lower than at any point in three years, following a 14.6-percent decline in same-store sales in the fourth quarter. The stock is down 33 percent since October.
Chipotle will likely need years to recover its lost sales. The key element is whether the chain can recover the halo it had enjoyed for so many years.
Zackfia, for one, expects same-store sales to improve throughout the year “as Chipotle shifts to an offensive stance in communicating its new food-safety protocol and aggressive marketing to woo back customers.” And, she expects the company to “emerge largely unscathed, as sales softness related to foodborne illnesses tends to be relatively short in duration.”
Buffalo Wild Wings wasn’t the only casual dining chain to receive some analyst love. Matt DiFrisco of Guggenheim Securities picked BJ’s Restaurants Inc., citing sales momentum and unit growth.
Jefferies analyst Andy Barish believeswill return to same-store sales growth as it ramps up unit growth.
Brian Vaccaro, analyst with Raymond James, picked Fiesta Restaurant Group, saying that the stock will outperform after a difficult year that he considers to be a “material revaluation in the stock.”
Jefferies analyst Alex Slagle picked, saying that same-store sales and earnings growth should surpass its quick-service peers this year.
And Stifel analyst Paul Westra picked, which he calls a well-positioned quick-casual concept that makes more money at 160 locations than many other fast-casual chains did at that size, including Chipotle, and Panera.