Buffalo Wild Wings' Minority Stake In Pizza Chain Creates Long-Term Opportunity

| About: Buffalo Wild (BWLD)

Back in April, I wrote an article listing possible acquisition targets of sports restaurant chain Buffalo Wild Wings (NASDAQ:BWLD). The article came after the company said it was actively seeking small restaurant chains to acquire. In that article, I mentioned the possibility of a merger between Buffalo Wild Wings and Papa John's (NASDAQ:PZZA). "Perhaps the perfect combination to Buffalo Wild Wings would be a large pizza joint," I wrote at the time. Well a merger with Papa's didn't happen, but Buffalo Wild Wings appears ready to break into the pizza segment.

On Thursday, Buffalo Wild Wings took a minority stake in Pizza Rev, a small California based pizza chain. The chain has only three locations in California (Northridge, Studio City, Woodland Hills). Here are some quotes from the announced deal:

· "The Pizza Rev team is thrilled to have Buffalo Wild Wings as an investor in our business, given its strong track record and stellar reputation within the industry," Pizza Rev co-CEO Rodney Eckerman

· "We believe that our relationship can have immediate impact in accelerating our growth and establishing a leadership position in the fast casual landscape," Pizza Rev co-CEO Irv Zuckerman

· "Along with chicken wings, pizza is one of America's most popular foods and we believe that Pizza Rev has great potential for continued growth and success," Kathy Benning, Buffalo Wild Wings executive vice president brand and business development

As you can see, both companies are excited by the deal. Both executives also hint at rapid expansion about to happen with the deal from Buffalo Wild Wings. A leader in the sports bar and wings segment, Buffalo Wild Wings now has over 900 locations in the United States. Buffalo Wild Wings has grown through company owned and franchise locations and is now ramping up international expansion. Plans call for restaurants in Canada, Puerto Rico and the Middle East as the chain expands its foreign presence.

With the slogan "Craft Your Own," Pizza Rev is a one of a kind personal pizza crafting experience. Customers select their sauce and unlimited toppings for less than $8 per pizza. The pizzas are cooked in a Fire-Deck oven, which heats up to 900 degrees. This allows the pizzas to cook in around three minutes, which will help Pizza Rev compete in the quick service restaurant segment with Subway and Chipotle Mexican Grill (NYSE:CMG).

In fact, Pizza Rev is being compared to Chipotle as the chain expands. Bravo TV said Pizza Rev was "kind of like the Chipotle or artisanal pizzas." With a focus on fresh ingredients and offerings like gluten free crust and vegan cheese, Pizza Rev is focusing on some underserved customer bases.

The expansion of this brand is huge. Papa Murphy's, which creates fresh pizzas that are taken home by customers to cook, has over 1,200 locations in 37 states. This chain could be as big or bigger than Papa Murphy's in the United States.

Buffalo Wild Wings is not done growing its own concept. With over 900 locations, the chain is getting close to its goal of 1,500 North American stores. Buffalo Wild Wings is smart to invest in this growing pizza concept and should be able to help it expand rapidly, making Buffalo Wild Wings stake increase in value fast. As Food & Drink magazine said, Pizza Rev is a "game changer." Expect expansion to rapidly increase with the much needed capital infusion.

Buffalo Wild Wings shares trade with a market capitalization of around $1.5 billion. Shares are trading at $84.98, closing in on a new 52-week high ($94.81). Analyst are expecting earnings to increase to $3.58 for the current fiscal year. The following year, analysts see the number jumping to $4.29. While shares trade at 20x next year's earnings, the company has continually beat earnings and put up huge double digit growth numbers.

As a former Buffalo Wild Wings shareholder, I can say that the growth has always been there with huge goals of double digit revenue, earnings, and unit growth across the board. Now investors who stick with Buffalo Wild Wings for the long term will have a chance to see how this investment in Pizza Rev works out.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BWLD over 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.