In the update, analyst Jason West said:
He thinks menu pricing will catch up with wing prices over time, driving margins higher. He also said he is not overly concerned about headline risk from McDonald's (NYSE:MCD) potential roll-out of bone-in chicken wings.
"The concern here is primarily on the supply side, in that MCD's wing demand could put upward pressure on the commodity. We would not expect a material impact on BWLD's wing sales given different usage occasions," said West.
"That said, we are not overly worried about supply-side impact of MCD getting into the wing business as this would likely be a limited time offer, and MCD's wing demand would still be a relatively small % of the overall wing market, based on our calculations."
While I personally am impartial to any wing set before me, I am a little more picky when it comes to the stocks I purchase. So, below I have analyzed the two stocks to show why both offer investors a lot of value despite what may come from the so called wing wars.
Buffalo Wild Wings
Buffalo Wild Wings currently has a market cap of $1.9 billion and as of December 30, 2012, the company owned and operated 381 restaurants and franchised an additional 510. Shares of BWLD are up 16.52% year to date and currently trade for $84.52 per share, 10.85% off their 52 week high.
Currently, analysts have a mean target price for BWLD of $87.07 and median target price of $89.00 per share. Average estimated first quarter earnings for 2013 are $0.99 per share on revenue of $304.23 million. For full year 2013, the average estimated earnings per share is $3.58 on estimated revenues of $1.27 billion, which indicate an expected increase in earnings per share of 15% and increase on 2012's revenues of 22%.
Positives for Buffalo Wild Wings
- Recently, Buffalo Wild Wings reported that 2012's fourth quarter revenues were up 37.8% over Q4 2011's, to $303.8 million.
- Company-owned restaurant sales grew 39.3% in the fourth quarter of 2012.
- Q4 2012's same store sales increased 5.8% at company-owned restaurants and 7.4% at franchised restaurants.
- Current P/E of 22.7 is below the industry's average P/E of 29.8.
- P/B of 4.1 and P/S 1.5 for BWLD is under the industry averages of 6.6 and 2.2 respectfully.
- BWLD's 3 year revenue growth rate of 24.5% is significantly above the industry averages 4.4%.
- Recently, a bullish 4.7% stake in the company was purchased by famous Billionaire and Citadel founder Ken Griffin.
McDonald's currently has a market cap of $98.9 billion and as of December 31, 2012, the company operated 34,480 restaurants in 119 countries. Shares of McDonald's are up 13.91% YTD and trade near at 52 week highs of $98.54 per share.
McDonald's has been focusing its efforts recently on modernizing its store and updating its menu's as evidenced by its recent plans to offer wings. For 2013, management has plans to open 1500-1600 new restaurants and to reinvest in existing locations. Capital plans for these new endeavors is approximately $3.2 billion.
Analysts have a mean target price for McDonald's of $101.92 per share and a median price target of $103.00. The average estimated earnings per share for the first quarter of 2013 is $1.27 on $6.6 billion in revenues. The average 2013 full year estimated EPS is $5.78 on revenues of $28.82 billion. These full year estimates are 8% higher than 2012's EPS of $5.36 and 5% higher than 2012's revenues of $27.567 billion.
Positives indicating McDonald's is a Buy
- McDonald's P/E of 18.6 is under the industry averages 29.8.
- MCD's three year revenue growth rate of 6.6%, operating margin of 31.2% and net margin of 19.8% are all above the industry averages 4.4%, 17%, and 10.6% respectfully.
- In 2012, McDonald's returned $5.5 billion to shareholders through dividends and repurchases ($2.89 billion for dividends and $2.286 in share repurchases).
- McDonald offers an attractive dividend yield of 3.1%.
- Over the past three years, MCD has had $20.45 billion (three years combined) in cash from operating activities of which it has spent $7.79 billion on investing activities and returned over $15 billion to investors in the form of dividends and stock repurchases. This indicating that MCD's 2013 plan to spend $3.2 billion on capital expenditures is well covered and that management has consistently been returning value to investors.
McDonald's and Buffalo Wild Wings both offer a lot of value and growth for the long-term investor. McDonald's, with a much larger market cap has a solid financial base and money that it can afford to continue to return to shareholders, as it consistently has done in the past. Buffalo Wild Wings is in a different cycle but also offers a lot of value and growth potential as it continues to open restaurants and sell franchises. For anyone wanting a more diversified approach, the following ETFs hold McDonald's as one of their top ten holdings:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.