Red Robin Gourmet Burgers, Inc. (RRGB), Buffalo Wild Wings (BWLD): Cloudy With a Chance of Cheeseburgers

Wunderlich Securities analyst Robert Derrington wrote in a note that he didn’t think the stock would take a hit from the Mighty Wings promotion, but agreed that wing prices could be volatile. He added that the new wing pricing by portion strategy protects Buffalo Wild Wings (NASDAQ:BWLD) from wild wing price swings.

Buffalo Wild Wings (NASDAQ:BWLD) has been expanding its menu to burgers and  brats (look out Red Robin!) to offset the volatility of chicken wing prices. Lucky for them, wing prices have come down significantly since last year’s $1.97 a pound and the company’s average price was $1.61 per pound in the second quarter. In addition, the company has hedged out chicken wings through March 2015.

With football season under way, even if the price of chicken wings rises, the stock should continue to rise in the back half of the year, traditionally the strongest quarters for Buffalo Wild Wings (NASDAQ:BWLD). On the call CEO Sally Smith expected incremental sales growth from their fantasy football draft party promotions.

Buffalo Wild Wings trades with a high trailing earnings multiple similar to Red Robin, 32.96 and 31.18 respectively. You get what you pay for in Buffalo Wild Wings with a faster growing chain and international expansion, in the Philippines most recently. Mexico and Middle East openings are expected by year end.

It has twice the number of restaurants with 932 and has increased that footprint by 23% in the last year, compared to the less than 5% increase at Red Robin. It also has a higher proportion of franchisees to company owned locations at 525 to 407.

Buffalo Wild Wings’ PEG ratio is lower at 1.60 than Red Robin’s 2.44 because it is just plain growing faster, and expects to open its 1,000th restaurant by early 2014.

The Foolish takeaway
Buffalo Wild Wings, coming into its strongest time of year and with chicken prices temporarily stable, could still go higher. As a longer term investment, its growth and higher proportion of franchisees are valuable to any casual dining investor.

Red Robin doesn’t have that international exposure. Its traffic problem, lower growth rate, and higher company owned restaurant ratio makes it one to bypass in favor of Buffalo Wild Wings.

The article Cloudy With a Chance of Cheeseburgers originally appeared on Fool.com and is written by AnnaLisa Kraft.

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings.

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