Prices for wholesale chicken wings are rising, leading analysts at Wedbush Securities Inc. of Los Angeles to downgrade their bullish position on Wingstop Inc., which is scheduled to release second-quarter earnings on Wednesday.
Dallas-based Wingstop, which has moved about 40% of its systemwide sales to boneless product, faces pressures from the rising prices, the Wedbush note said.
Analysts said wing prices have gradually increased more than 30% in the past month, which may impact Wingstop’s shares. Wingstop is not along, as a number of companies have expanded into wing virtual brands, from Brinker International Inc.’s It’s Just Wings to Dine Brands Global Inc.’s Cosmic Wings.
“Throughout [Wingstop’s] life as a public company, periods of high wing costs have been followed by outsized pricing by franchisees, which has led to deteriorating transaction growth,” Wedbush noted.
“During periods of wing cost inflation, [Wingstop’s] share price tends to either stagnate or decline,” it said. “While management has successfully increased the boneless mix in recent years to almost 40%, and is taking steps to increase it further, bone-in will likely continue to dictate franchisee pricing decisions for the foreseeable future.”
The average price target for Wingstop’s shares among analysts tracked by Bloomberg was $204. Wedbush downgraded the chain to neutral from outperform and reduced the stock target price to $185.
Wedbush said it saw “little risk to near-term unit growth expectations, but the above scenario could cap out-year net unit growth.”
For the first quarter ended April 1, Wingstop’s net income increased 80.6% to $15.7 million, or 52 cents per share, up from $8.7 million, or 29 cents a share in the same period last year. Revenues increased 42.7% to $108.7 million, up from $76.2 million in the same quarter last year.
Wingstop, founded in 1994, operates and franchises more than 2,000 locations worldwide.
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