BWLD Stock Pitch PDF

By: Cameron Karlen 09/24/2015 All info as of 04/22/2015

Buffalo Wild Wings (BWLD)

¨  Recommendation: BUY

¨  Price Target: $220

¨  Current Price: $175.05 2

•  Well positioned for strong global growth

•  Clean balance sheet •  Stable margins

BUY

•  Company uses several methods to nullify the volatility

•  Margins have stayed stable

Volatility in Chicken Prices

•  14.1% CAGR since 2001 •  Expecting 400 international stores

by 2024

Growth Strategy

•  Rose between 2013 and 2014 •  Forming strategic partnerships to

increase customer traffic

Same-Store Sales

•  Undervalued based on DCF analysis and comparables Valuation

•  Lack of growth •  Extreme volatility in price of chicken

wings •  Decrease in pricing power

Risk

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Growth 2013 2014 2015E 2016E Sales $1,266,719 $1,516,223 $1,824,016 $2,230,772

Growth 21.74% 19.70% 20.30% 22.30% EPS $3.81 $4.98 $6.18 $7.36

Growth 23.70% 30.71% 24.10% 19.09% Ra2o ROE 16.9% 18.1% 18.4% 18.0% ROIC 14.6% 16.1% 16.7% 16.6% FCFF/Share $0.86 $1.23 $1.33 $2.00 Debt/Assets $-‐ $-‐ $-‐ $-‐ Op asset/Op liability 1.05 1.25 1.29 1.36 Net Profit Margin 5.6% 6.2% 6.4% 6.3%

Business Overview

¨  Casual sit down restaurant featuring chicken wings, 16 signature sauces and 5 seasonings ¤  State-of-the-art sports viewing complex, with over 30 flat screen TV’s and every game

package to give fans the ultimate game day experience

¤  Two revenue streams: ¤  Company owned stores (491)*

¤  Royalties from franchised stores (591)**

¤  5 international restaurants ¤  More to come in 2015

¤  Invests in two other concepts besides Buffalo Wild Wings: ¤  Fast/Casual pizza restaurant, PizzaRev

¤  Fast/casual taco restaurant, Rusty Taco, Inc.

¤  Market Cap of $3.823 B

3

Business Driver 1 Driver 2 Driver 3 Financials Comps Relative

Valuation DCF Risks Summary

*Includes 2 PizzaRevs and 2 Rusty Tacos ** Includes 7 Rusty Tacos

Figure 1: Makeup of Sales

93%

7%

Restaurant Sales Franchise Royalties and Fees Source: Company Reports, Karlen



Driver 1: Volatility in Price of Chicken 4

¨  Unstable wholesale chicken prices ¤  Price of wings = 0.8053 correlation

coefficient ¤  Serve wings by weight instead of

quantity ¤  3% price increase in November of

2014

Figure 2: Avg. Quarterly Wholesale Price of Chicken Wings

Figure 1: Correlation Between Costs and Price of Wings

Source: Company Reports, Karlen

Source: Bloomberg

Source: Company Reports, Karlen

0

0.5

1

1.5

2

2.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ($

/lbs

)

. 2010 2011 2013 2014 2012

Year Op. Costs as a Percent of Sales

Annual Avg. Wholesale Price

of Wings 2010 73.91% $1.58 2011 72.99% $1.21 2012 75.77% $1.97 2013 76.32% $1.76 2014 75.62% $1.55

R=0.8053

Driver 2: Store Growth

¨  Ultimate goal of opening 3,000 stores globally

5

¤  Went public in 2003 with 245 total stores

¤  Has since grown to 1,082 total stores

¤  5 of these are international ¤  Expecting to open a total of 400

international stores by 2024

¤  Management believes they can operate 1,700 stores domestically and 1,300 stores internationally before being saturated

¤  Management has never paid a dividend

¤  All profits are reinvested to fund growth

Source: Company reports, Karlen

158 199

245 306

370 429

493 560

652

732 817

891

993

1082

0

200

400

600

800

1000

1200

2001 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Num

ber

of S

tore

s

Franchise Company Owned

Figure 3: Store Growth from 2001-2014



Driver 3: Same-Store Sales

¨  Increased Same-Store Sales in 2014 ¨  Important to look at when

the company is growing this quickly ¨  “Krispy Kreme” approach

¨  Creating strategic partnerships to increase customer traffic ¨  NCAA

¨  PepsiCo ¨  Existing partnerships with NFL

and MLB

¨  Craft Brew Alliance

¨  Boys and Girls Club

6

Figure 4: Company-owned Restaurants Same-Store Sales

Source: Company Reports

Company-‐owned

Restaurants: Q1 Q2 Q3 Q4 Year Yearly % Change

2014 60,966 59,403 59,643 62,119 60,470 7.23% 2013 56,953 54,759 55,592 58,204 56,392 4.85% 2012 55,131 51,524 52,561 55,595 53,783 8.37% 2011 48,845 47,970 49,461 51,983 49,627 11.27% 2010 45,327 43,021 44,394 45,595 44,601 -‐





Financials 7

¨  Success will continue throughout 2015 and 2016

¤  Constantly increasing EPS

¤ Growth without debt, minimal share issuance

¤  Increase in ROA and ROE

¤ Stable Margins

Figure 6: Selected Metrics

Figure 5: Net Income, Share Growth and EPS Growth

Source: Company 10K

Source: Company 10K

17.5% 16.3%

16.9% 18.1% 18.4% 18.0%

-

0.5

1.0

1.5

2.0

2.5

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2011 2012 2013 2014 2015 2016

ROE - L

ROA - L

Net margin - L

Asset turnover - R

Equity multiplier (Leverage) - R

10-‐Dec 11-‐Dec 12-‐Dec 13-‐Dec 14-‐Dec 15-‐Dec 16-‐Dec Net income $38,400 $50,426 $57,275 $71,554 $94,094 $117,250 $139,975 Growth -‐ 31% 14% 25% 32% 25% 19%

Basic Shares $18,175 $18,337 $18,582 $18,770 $18,908 $18,964 $19,030 Growth -‐ 0.89% 1.34% 1.01% 0.74% 0.30% 0.35% EPS $2.11 $2.75 $3.08 $3.81 $4.98 $6.18 $7.36

Growth -‐ 30% 12% 24% 31% 24% 19%

Comps 8

¨  Decent multiples compared to comps ¨  BWLD is cheaper than the average comp for P/B and P/S

¨  Above average sales

Figure 7: Comp Sheet

Source: FactSet



Company Name Price Market Value 2014 Sales TTM P/E TTM P/B P/S EV/EBIT P/CF Buffalo Wild Wings, Inc. $175.05 $3,453 $20,763 36.8 5.96 0.17 23.5 16.9 Jack In The Box, Inc $93.02 $3,541 $24,265 40.6 16.68 0.15 18.0 18.1 Ruby Tuesday, Inc. $7.27 $451 $5,736 -‐55.9 0.98 0.08 -‐70.0 5.7 BJ's Restaurants, Inc. $50.84 $1,335 $5,563 51.9 3.82 0.24 36.5 15.3 Ignite Restaurant Group, Inc. $3.90 $102 $1,259 -‐1.9 1.96 0.08 -‐43.5 8.0 DineEquity, Inc. $102.64 $1,962 $1,015 54.3 6.97 1.93 15.0 16.5 Brinker Intl, Inc. $59.48 $3,754 $1,610 25 760.71 2.33 16.5 11.7 Starbucks Corp. $48.14 $72,191 $20,878 29.2 12.51 3.46 20.4 25.0 Yum Brands, Inc. $79.60 $34,476 $4,695 34.8 22.33 7.34 17.9 17.3 Chipotle Mexican Grill, Inc. $677.60 $21,021 $2,174 48 10.45 9.67 29.0 Mcdonald's Corp $96.44 $92,690 $1,710 20 7.22 54.20 13.5 14.2 Average $8,152 26 8.89 2.54 7 15

Median $4,695 35 7 1.93 18 16

R² = 0.53301 y = 0.9582x + 0.0784

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

0.0 0.2 0.4 0.6 0.8 1.0

Val

uatio

n

Fundamental



Valuation 9

BWLD

¨  Undervalued vs. peers

¤  Using equal weights of: Long Term Earnings Growth, 2014 NPM and NTM Sales Growth against TTM P/E and P/CF

¤  Under valued by approximately 25% based on current fundamentals

Figure 9: Composite Relative Valuation Graph

Figure 8: Composite Relative Valuation (1 is most expensive)

Source: FactSet

Valuation 10

¨  Price target of $220 ¤  Three stage DCF

n  Continued strong growth over the next 7 years

n  Three terminal multiples

n  Cost of equity of 9.6% as a result of a risk level less than the market

n  Calculated Beta = 0.95

n  Average from 3-stage DCF’s of: n  P/S= $215.76

n  P/B= $224.59

n  P/E= $220.95

n  CG= $225.69

¤  Terminal values derived from historical data and industry averages

Figure 10: DCF Assumptions

Figure 11: DCF’s Price Targets



Assump2ons

Terminal P/S 1.65

Terminal P/B 5.5

Terminal P/E 27

Second Stage Growth Rate 7.0%

Cost of Equity Risk free rate 1.96 Beta 0.95 Market Return 10.0%

Market risk premium 8.0%

Stock risk premium 7.6% Cost of Equity 9.598%

$215.76

$224.59

$220.95

$225.69

$210.00

$212.00

$214.00

$216.00

$218.00

$220.00

$222.00

$224.00

$226.00

$228.00

P/S P/B P/E CG

Pric

e Ta

rget

$220

Risks

¨  Lack of growth

¨  Chicken wing volatility ¤  Increased prices decrease pricing power

¨  Conflicts within professional sports ¤  Strikes/Holdouts

¤  Problems with TV contracts

¨  Competitive market place

¨  Loss of licenses and permits

¨  General economic conditions

11



Summary

¨  Growth opportunities domestically and internationally

¨  Clean balance sheet helps growth prospects

¨  Pricing wings by weight instead of quantity helps to keep margins stable

12

¨  BWLD undervalued on an absolute and relative basis

¨  BUY rating with price target of

$220



Date post:	14-Apr-2017
Category:	Documents
Upload:	cameron-karlen
View:	373 times
Download:	1 times

BWLD Stock Pitch PDF

Documents