Does it surprise you to learn that more chicken wings are consumed on Super Bowl Sunday than any other date in the calendar year?
Even if you aren’t surprised, it’s astounding to learn that a massive 1.23 billion chicken wings are consumed during the standout American holiday weekend. This figure is based on hard data from the National Chicken Council.
With millions of Americans having an undeniable love for all things chicken, how can Foolish investors capitalize on the trend?
The answer is surprisingly simple: Buffalo Wild Wings (NASDAQ:BWLD). The Minneapolis-headquartered restaurant chain offers a hard-to-beat value proposition for restaurant patrons (and investors): a delectable variety of chicken wings and sauces, alcoholic beverages, and large flat screen TVs for sports fans to indulge in their favorite basketball, baseball, or football games.
The only thing better than the B-Dub’s in-restaurant experience is staying at home and earning an investment return on America’s love of chicken wings, beer, and sports. Here’s why Buffalo Wild Wings’s stock has at least 30% more upside to $120 a share over the next 12 months:
During the fourth quarter, same-store sales increased 5.8% at company-owned restaurants and 7.4% at franchised restaurants. Rising sales at existing restaurants combined with new restaurant openings will drive sustainable earnings power.
Unit growth is a key component of a long-term investment in Buffalo Wild Wings (NASDAQ:BWLD). The company currently operates 910 restaurants within North America, and management estimates that total capacity could reach 1,700 locations within the next six years.
Wall Street continues to view the B-Dubs story favorably. Analysts at Raymond James recently upgraded the stock two notches to “strong buy” from “market perform” with a new $100 price target. The highest price target on the Street currently stands at $120.
A fifth reason to buy the stock in the near term is the recent 34-minute Super Bowl blackout, which should be reflected in Q1 upcoming results on April 29.
No one was happier with the blackout than B-Dubs CEO Sally Smith, who told her local Minnesota newspaper the additional time was “probably pretty good for business.” Smith estimates B-Dubs sold upwards of 10 million wings during the game, higher than the 8.8 originally expected. A single day of blowout sales could help BWLD beat upcoming first quarter results.
Beneficiaries of Lower Chicken Prices
While not direct corollaries, restaurant chains Chipotle Mexican Grill, Inc. (NYSE:CMG) and McDonald’s Corporation (NYSE:MCD) are also beneficiaries of lower food and commodity prices.
Divested from McDonald’s back in 2006, Chipotle recently reported better-than-expected first quarter earnings of $2.45 vs. $2.14 consensus, causing the stock to skyrocket in the after hours on April 19. Wall Street wasn’t that impressed with the EPS beat, however, as the company’s same-store sales came in weaker than expected. Comparable restaurant sales grew a mere 1% during the first quarter, hardly a figure that can justify Chipotle’s premium valuation.
Despite a potential tailwind from steady food prices, it’s difficult to take a bite of Chipotle at 40x price-to-earnings. Management does plan to open between 165 and 180 new restaurants in 2013, so the stock will grow into its high multiple over time. I’d recommend Buffalo Wild Wings (NASDAQ:BWLD) instead for new investors.
McDonald’s, the world’s largest restaurant chain, reported weaker-than-expected first quarter earnings on April 22. Global comparable sales fell 1%, and in isolation U.S. same-store sales fell 1.2%. On the conference call, management stated that “significant headwinds” remain in the United States as consumer confidence weakens.
Analysts at Royal Bank of Canada remain optimistic on McDonald’s following the lukewarm report, and raised their price target to $107 from $98 while maintaining an “outperform” rating.
In spite of benefitting from stabilizing input prices, I can’t recommend Chipotle based on the valuation. For the conservative investor, McDonald’s offers more stability than Chipotle or B-Dubs, and I’m confident that management can weather an uncertain economy better than any other restaurant operator.
Foolish Bottom Line
While consumer preferences may change for an Apple iPhone over a Samsung Galaxy, America’s love for chicken wings, beer, and sports isn’t likely to abate anytime soon. Readers should consider an investment in Buffalo Wild Wings, which offers growth at an attractive valuation.
B-Dubs is developing a widening economic moat from store expansion, and the company doesn’t have any comparable competition on the same scale, publicly traded or otherwise. Readers will receive an update from Buffalo Wild Wings (NASDAQ:BWLD) when the company reports first quarter 2013 results on Monday, April 29 after the market close.
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The article 5 Reasons This $90 Stock Is Heading to $120 originally appeared on Fool.com.
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