Strategic Expansion And NBA Partnership Drive Dynamic Global Revenue Growth

Key Takeaways

• Strategic media and partnership initiatives are set to drive brand awareness and transaction growth, aiming for increased revenue and system AUVs.
  
• Expansion in digital engagement and delivery channels focuses on transaction frequency and customer acquisition, targeting positive revenue impact.
  
• Reliance on volatile costs, aggressive expansion, and increased expenses may strain margins and earnings without corresponding revenue growth and strategic flexibility.

Catalysts

Wingstop Inc., together with its subsidiaries, franchises and operates restaurants under the Wingstop brand.

• Wingstop is focused on scaling brand awareness through targeted media strategies, including a new partnership with the NBA. This is expected to drive transaction growth and consequently, increase revenue and overall system AUVs over time.
  
• Expansion of the delivery channel and enhancements in digital engagement through MyWingstop aim to drive increased transaction frequency and new customer acquisition, potentially impacting revenue growth positively.
  
• The company has made significant investments in supply chain strategy to mitigate commodity price volatility, which will help maintain food costs in the mid-30% range. This predictability can improve net margins by reducing cost variability.
  
• Wingstop plans to develop 320 to 330 net new restaurants in 2024, reflecting a strong development pipeline. This expansion is likely to significantly boost revenue through increased franchise fees and royalties.
  
• International expansion opportunities, particularly in Western Europe and new markets like France and Australia, are targeted through strategic brand partnerships, which could significantly increase Wingstop's global revenue contribution over the long term.

Wingstop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wingstop's revenue will grow by 21.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.1% today to 18.3% in 3 years time.
• Analysts expect earnings to reach $191.9 million (and earnings per share of $6.81) by about November 2027, up from $100.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 65.6x on those 2027 earnings, down from 98.5x today. This future PE is greater than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 1.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.45%, as per the Simply Wall St company report.

Wingstop Future Earnings Per Share Growth

Risks

• The company's reliance on the volatile spot market for bone-in wings could lead to unpredictable swings in food costs, potentially impacting net margins if the current supply chain strategy fails to mitigate these challenges.
  
• The aggressive rate of new restaurant openings, while reflecting strong demand, carries execution risks and could strain operational capabilities, potentially affecting earnings if not managed well.
  
• Increased SG&A expenses, driven by performance-based stock compensation and investments in headcount, could pressure net margins and earnings if revenue growth doesn't keep pace.
  
• The company's focus on scaling brand awareness through increased advertising spend, including partnerships like the NBA, entails financial commitments that may not immediately translate into higher sales, potentially impacting net margins.
  
• Dependence on existing brand partners for the majority of new store development might limit strategic flexibility, risking slower growth rates in new markets and potentially affecting revenue in the long term.

Valuation

• The analysts have a consensus price target of $362.09 for Wingstop based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $468.0, and the most bearish reporting a price target of just $180.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.0 billion, earnings will come to $191.9 million, and it would be trading on a PE ratio of 65.6x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $339.75, the analyst's price target of $362.09 is 6.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.