Buffalo Wild Wings Has A Ferocious Appetite Beyond Beer And Wings

Sep. 3.14 | About: Buffalo Wild (BWLD)

Summary

Buffalo Wild Wings made investments in two small restaurant chains.

Buffalo Wild Wings likely has bigger deals to announce soon.

The company is flushed with cash, credit, and cash flow that seem to be burning a hole in its pocket.

Tacos, wings, beer, and pizza: what else may be on tap for Buffalo Wild Wings (NASDAQ:BWLD)? In the past year, the sports bar chain has charged past the 1000th restaurant milestone, invested in the PizzaRev fast-casual pizza chain, and most recently, invested in the Rusty Taco fast-casual Mexican chain. If you think Buffalo Wild Wings is done there, then you haven't been paying attention.

The PizzaRev investment is a minority one, and seems to make Buffalo Wild Wings just a franchisee at least for now. Perhaps the company is just dipping its toe in the water to see how it goes, before making an offer to swallow the rest of the company and build out the concept in a way that the private PizzaRev company may not be able to do on its own. That's just speculation.

For the Rusty Taco chain, it's similar, only Buffalo Wild Wings called it a "majority investment," which implies, among other things, majority control and the realistic opportunity to take full ownership down the road if it's in everybody's best interest.

Kathy Benning, a VP with Buffalo Wild Wings, stated on behalf of the company, "As part of our long-term growth strategy, we are actively looking for additional concepts to invest in to build a portfolio of emerging brands, and continue to build a dynamic restaurant company." I like the word "emerging." Buffalo Wild Wings seems to be focused on trying to find that next big thing, very early, and take it for a big ride.

These known investments, even if a bit short on details for now, I find quite interesting. What might be coming next, though, I find possibly fascinating. These first two investments were relatively small for this multi-billion dollar chain, and didn't carry much risk or capital.

Buffalo Wild Wings, however, may just warming up. During the conference call back in July, CFO Mary J. Twinem stated, "We also have available $100 million unsecured line of credit that provides the flexibility for future acquisitions and investments. In May we extended the maturity date of the facility to February 7, 2017." This is on top of the $101.1 million in cash on the balance sheet at the end of the second quarter, up from $65.1 million at the end of 2013. The company did talk about acquiring up to 19 more restaurants from its franchisees by the end of the year, which will probably just come out of its nicely positive cash flow ($51.2 million last quarter alone).

It seems like the cash and liquidity available is burning a hole in Buffalo Wild Wings' pocket. The two initial investments in PizzaRev and Rusty Taco are an interesting start. I suspect and expect we'll be seeing much larger deals coming that are probably in the works right now. The smaller the deal, often the quicker it is to finalize, so the first two may just be the appetizer. It's a good time to be a shareholder in Buffalo Wild Wings, in my opinion, because every day you never know what positive surprise the company may have in store for us.

I've said it before, and I'll say it again: I believe Buffalo Wild Wings is undervalued based on its wing and beer business, as it is with none of its wild cards priced in. If Buffalo Wild Wings finds even a small hit with one of its investments, it could really accelerate the bottom line.

Disclosure: The author is long BWLD.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.